The main office of Corporate Commercial Bank, or K.T.B., in Sofia, Bulgaria, on Thursday.
LONDON — Bulgaria’s central bank on Thursday revoked the license of one of the country’s biggest lenders and moved to open bankruptcy proceedings.
The lender, Corporate Commercial Bank, also known as K.T.B., has been closed since a bank run in June, leaving businesses and consumers without access to about $4 billion in deposits.
The move on Thursday halts all activities at the bank and opens the way for the payment of more than half of the deposits — about $2.3 billion, which are insured by the state under European Union law. The depositors, hundreds of whom have been staging near-weekly protests since August, will have access to their money beginning early next month, the central bank said.
In a statement on Thursday, the central bank said that because of a write-off after an audit last month, K.T.B. had negative capital of 3.75 billion leva, or a shortfall of $2.4 billion. The central bank said it had asked a court to begin bankruptcy proceedings.
The failure of K.T.B., Bulgaria’s fourth-largest lender, is the first collapse of a bank in the East European country since a banking crisis there in the 1990s. Because the bank was long a financial broker for the country’s elite, its failure has also cast a spotlight on the links between politics and business in Bulgaria, the European Union’s poorest member state.
One of the smallest banks in Bulgaria in the early 2000s, K.T.B. had a meteoric rise as the bank became the lender of choice for many in the country’s political and corporate establishment. Most ministries and state companies parked their money there, including the country’s big state-owned energy companies.
“K.T.B. was entangled with political power, which helped it grow very quickly,” said Georgi Angelov, senior economist with the Open Society Institute in the country’s capital, Sofia. “But this rapid growth has not been based on solid foundations, and the bank has followed corrupt business practices.”
The bank run in June was prompted by news reports of dubious deals by K.T.B.'s main shareholder, Tsvetan Vassilev.
The government placed K.T.B. under central bank oversight after the run on deposits forced the lender to close its doors. An audit of the bank showed that it needed to write off almost two-thirds of its assets because of “bad business practices,” the central bank said in October. The audit revealed that only 13 percent of K.T.B.'s loans had valid collateral.
In October, the European Union’s banking watchdog warned that Bulgaria was breaching European law by blocking depositors’ access to their money.
The preliminary audit last month revealed outsize exposure to companies linked to Mr. Vassilev, who has denied any wrongdoing. He said the bank run was a plot engineered by his business rivals.
In August, Bulgarian prosecutors charged Mr. Vassilev with embezzling about $140 million from the bank during the last three years. The international police agency Interpol issued an arrest warrant for him.
Mr. Vassilev, who is in neighboring Serbia awaiting a court ruling on an extradition request by Bulgaria, is also under investigation by the authorities in Liechtenstein on suspicion of money laundering.
K.T.B.'s bankruptcy might prompt lawsuits from bondholders and larger depositors, whose money is not guaranteed by the state. In a letter to the government on Tuesday, a group of international bondholders in K.T.B. warned Bulgaria that letting the bank fail would be more expensive than saving it and risked years of lawsuits.
“This decision will haunt the Republic of Bulgaria for years to come,” said the letter from the group, which shared it only on the condition that its members not be identified while their discussions with the government were underway.
The bank’s failure also threatens to take an economic toll. K.T.B. holds the deposits of consumers, companies, hospitals, municipalities and schools. Trade and employer unions had warned that the bank’s failure could threaten hundreds of thousands of jobs in Bulgaria, a country of 7.3 million.
Though the bank run briefly spread to another bank, the fallout has been limited. The country’s foreign-owned banks, which account for about 70 percent of the market and include UniCredit of Italy and Raiffeisen Bank International of Austria, have not been affected.
Steve Hanke, who was an adviser to several Bulgarian presidents in the 1990s and is now professor of economics at Johns Hopkins University in Baltimore, said the problems at K.T.B. were part of a pattern since Bulgaria shook off communism in 1989.
“It’s a deadly cocktail that consists of private personalities with shady character mixed with Bulgarian politicians who you can’t trust at all,” Mr. Hanke said in an interview. “And it always ends in tears.”
The New York Times
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