20.12.2022 The BDB Supervisory Board notes delayed recovery actions from large debtors

The Supervisory Board of the Bulgarian Development Bank noted unjustified and unreasonably delayed actions against debtor companies. The Supervisory Body considered a report of the Board of Directors on all actions to collect receivables and protect the Bank's interest in exposures over BGN 5 million, which are provisioned over 50%.

The BDB has extended eight large loans that do not correspond to the core mission and function of a development bank, found the Supervisory Board. Six of them are regularly serviced, have no delinquencies and generate income for the bank.

According to the requested report, the defaulting large debtors with debts of more than BGN 50 million, which are provisioned more than 50%, are three - a group of companies in the field of road construction, a transport company and a power tool manufacturer.

According to the Supervisory Board, the actions taken with regard to the largest irregular credit exposure with an amount of over 150 million BGN, which also aroused the greatest public interest, are inconsistent and unjustifiably delayed.

The established facts are at odds with the publicly stated intentions of the caretaker Minister for the Economy in 2021 regarding this large loan. For the period from 22 June 2021 to 18 May 2022 (almost a year after the appointment of the management of the BBR by the caretaker Minister of Economy on 22 June 2021 and more than 5 months after the inauguration of the regular government on 13 December 2021), no action has been taken for said exposure. It was only on 18 May this year that a decision was taken to proceed with enforcement on the commercial enterprise with the appointment of an administrator for one of the group companies. The management takeover could have been done at an earlier stage so that the administrator appointed by the BDB under the Special Pledges Act (SPA) could have been fully informed about the state of the company. It was also necessary to require active measures against the company's counterparties to enforce the concluded sales contracts (receivables pledged to the bank).

In comparison to the above, a partial write-off and off-balance sheet recording of BGN 52 million from the liability to the BDB was approved as early as May 2022. The bank wrote off and placed off-balance sheet approximately 1/3 of the receivable on the grounds that there was no reasonable expectation of recovering the financial asset without commissioning a new valuation of the entire business enterprise of the obligated companies and prior to the entry of the appointed administrator under the SPA, whose first task was to request full information on the status of the obligated entity.

During this period, there is no evidence of measures and guidance from the Sole Proprietor to accelerate the collection of exposure.

The repaid debt after the undertaken actions for collection until the date of the audit is BGN 0 (zero).

An exit strategy and action plan for this credit exposure was approved only on 29 June 2022, when the work on the assessment of the current situation of the borrower was actually started and a contract was signed with an audit company for analysis of the financial situation, legal analysis, preparation of a business plan and evaluation of the entire commercial enterprise. The filing of a claim against the debtor's contractors for payment of damages caused by the debtor's failure to perform contracts for the purchase of road construction materials was approved in October 2022.

The BDB’s Supervisory Board is aware that this type of exposure requires maximum efficiency, professionalism and will to find solutions instead of populism. The Supervisory Board instructed the Governing Board to update the exit strategies with specific steps and measures for the collection of the large problematic receivables.

The Supervisory Board will continue its efforts to implement the objectives set out in the BDB Act, namely lending to small and medium-sized enterprises, financing priority projects for the economy and the state, as well as those that will help to overcome regional imbalances in the country.

The information in this press release complies with regulatory restrictions on the protection of bank information.