UPDATE 2-Bulgaria's central bank orders full audit of Corpbank

Thu Jul 31, 2014 12:33pm EDT

* Central bank plans to extend control over the troubled lender

* Says bank posted loss, drop in capital adequacy at end-June

* Prepares to ask shareholders to provide capital and liquidity support

* Asks EBA to review its banking supervision division (Adds request to EBA for a review, background)

By Tsvetelia Tsolova

SOFIA, July 31 (Reuters) - Bulgaria's central bank will ask independent auditors to carry out a thorough review of Corporate Commercial Bank's (Corpbank) books until Oct. 20, it said on Thursday, effectively extending its control over the bank.

The central bank took control of Corpbank on June 20 for three months following a bank run, which plunged the Balkan country into its worst banking crisis since the 1990s. The central bank proposed a rescue plan for Bulgaria's fourth largest lender, which failed to get parliament's approval.

The central bank said it now plans to ask current shareholders of Corpbank to express interest in whether they are willing to provide capital and liquidity support. It said it plans to extend its control over the bank beyond an initial deadline of Sept. 21.

The central bank can keep a lender under its supervision for up to six months under Bulgarian law.

Clients unnerved by reports of alleged shady deals involving Corpbank's main owner Tsvetan Vassilev withdrew more than a fifth of deposits in a week-long bank run in June, forcing the central bank to shut down its operations.

Vassilev, who was locked in a public feud with a rival at the time of the run, has repeatedly denied any wrongdoing and said the run was a plot hatched by his competitors.

A report by the central bank's administrators showed that Corpbank's loan portfolio stood at 5.3 billion levs ($3.63 billion)at the end of June, while its deposits had dropped by 630 million levs from a month earlier to 5.6 billion levs.

The bank registered a loss of 65.3 million levs after having to cover devaluations of its loans, the central bank said in a statement, while its total capital adequacy ratio had dropped to 10.54 percent at the end of June, from 12.56 percent at the end of 2013.

The central bank will ask Deloitte, EY and local auditing firm AFA to carry out a full review of the bank's assets, after their initial audit showed insufficient information to value loans worth 3.5 billion levs. The initial audit had indicated "activities incompatible with the law and good banking practices", according to the central bank.

The run on Corpbank and the subsequent hit on another lender raised questions about the quality of banking supervision in the Balkan state, which joined the European Union in 2007 and is its poorest member.

Central bank governor Ivan Iskrov has said he is prepared to resign if politicians agree on a successor to lead the country through the banking crisis - an option that has been abandoned for now due to lack of political agreement.

On Thursday, the central bank said it had sent a letter to the president of the European Banking Authority, inviting the EBA to carry out "an independent review of the quality, capacity, practices and procedures of the central bank's banking supervision division."

Iskrov has said he expected such a review to be carried out in the autumn.

Vassilev owns 50.6 percent of Corpbank, an Omani sovereign wealth fund holds 30 percent and Russian VTB Bank owns about 9 percent.

The Omani fund has said it and other shareholders were seeking to stabilise the troubled bank, while VTB has said it was not planning to extend support. ($1 = 1.4611 Bulgarian levs) (Reporting By Tsvetelia Tsolova; Editing by Susan Fenton)