Bulgarian central bank says banking system under attack (updated)

First Investment Bank AD

27/06/2014 21:53

* Says there is an attempt "to destabilise the state" 
    * Bank run revives memories of sector crisis in 1990s 
    * First Investment Bank shares down 24 percent 
    * Political parties agree to hold snap election on Oct 5 
 
 (Adds finance minister, paragraphs 15-16, 31; more background) 
    By Tsvetelia Tsolova and Gareth Jones 
    SOFIA, June 27 (Reuters) - Bulgaria's central bank said on 
Friday there was a systematic attempt to destabilise the country 
through attacks on the banking system and vowed to protect 
citizens' savings.  
    Depositors queued in the capital Sofia to withdraw funds 
from one of the country's biggest banks and its shares slumped, 
worsening a crisis that has shone a light on weak economic 
governance in the poorest European Union state.  
    Last week, the central bank took control of Corporate 
Commercial Bank (Corpbank)  6C9.BB  after a run on deposits 
sparked by media reports of suspect deals involving the bank and 
its top shareholder.  
    The central bank said Corpbank's problems were isolated. 
Economists and Fitch Ratings agency also played down the risk of 
contagion, while foreign banks with subsidiaries in Bulgaria - 
accounting for more than two thirds of the Balkan country's 
banking system - insisted their operations were safe.  
    But the crisis spread on Friday as the country's 
third-biggest lender, First Investment Bank  5F4.BB , said it 
was under an "unprecedented criminal attack".  
    Reuters witnesses saw queues of between 15 and 30 customers 
build gradually after some bank branches opened on Friday in 
Sofia. By early afternoon, there were around 70 people queuing 
outside one central branch of First Investment Bank. 
    The bank said depositors withdrew about 800 million levs 
($555.88 million) and announced it would close all branches at 
1200 GMT until Monday for "logistical reasons". It said it had 
enough funds to meet clients' demands.  
    A spokesman said Internet banking services and cash machine 
withdrawals would continue to function over the weekend.  
    "I was told to come here and take my money out," said a 
32-year-old woman in one bank queue who did not want to be 
named. "I hope they do not close the doors in front of our 
noses."  
    Interior Minister Tsvetlin Yovchev said the government was 
investigating attempts to destabilise the banking system. He 
said there had been a concerted phone and Internet campaign to 
spread rumours about other banks.  
    Prime Minister Plamen Oresharski said there was no cause for 
concern. On Friday, leaders of the main political parties set 
Oct. 5 as the date for a snap parliamentary election, putting an 
end to weeks of political uncertainty that has coincided with 
the bank runs.  urn:newsml:reuters.com:*:nR5N0NF00V  urn:newsml:reuters.com:*:nR5N0NF01M  urn:newsml:reuters.com:*:nL6N0P836R  
    "The risk of a widespread run on banks increases in a 
situation like this, and it's pretty important that the 
authorities are on top of things," said Lars Christensen, chief 
emerging markets analyst at Danske Bank. 
     
    FEAR OF CONTAGION 
    The crisis has knocked an already weak economy and revived 
concerns about persistent corruption in the country, which 
joined the EU in 2007. Many Bulgarians who lost money in a 
banking sector meltdown in the late 1990s are wary of official 
assurances that their savings are safe.  
    Both Corpbank and its biggest investor, Bulgarian 
businessman Tsvetan Vassilev, have denied any wrongdoing. 
    Finance Minister Petar Chobanov told Bulgarian state TV late 
on Friday the government was working closely with the central 
bank and political parties to contain the crisis. 
    "I can categorically state that no banks are at risk at this 
moment. The current situation has nothing to do with (the 
crisis) in 1996-97, the banks are operating normally and they 
have good liquidity," Chobanov said. 
    Comments on Thursday by a deputy from the ruling Socialist 
Party that another bank may suffer a similar fate to Corpbank 
accelerated the steep declines in Bulgarian bank stocks over the 
past two days.  urn:newsml:reuters.com:*:nL6N0P73ZY  
    The lawmaker, Anton Kutev, told Nova TV he thought there had 
been a deliberate attempt to "break" Corpbank and that "someone 
is trying to pull down another bank, as far as I feel". He did 
not say who might be trying to take such action.  
    "In recent days there has been an attempt to destabilise the 
state through an organised attack against Bulgarian banks 
without any reason," the central bank said in its statement. It 
said First Investment Bank had been a major target.  
    The central bank urged all state institutions to work 
together to protect financial stability and take legal action 
against those spreading "untrue and ill-intentioned rumours" 
about the health of Bulgaria's banks.  
    It condemned what it called "criminal actions (that are) 
directly aimed at the savings of all Bulgarian citizens and 
financial stability as an essential element of national 
security".  
     
    PAINFUL MEMORIES 
    Shares in First Investment Bank had shed 24 percent by 
market close on Friday. Other bank shares were also down 
sharply. Bulgarian credit default swaps were at 121 basis 
points, close to a 15-month high reached earlier this week. 
    The lev currency is tied to the euro through a currency 
board, so is shielded from the turmoil. 
    "The whole banking sector is being sold off due to the 
problems around Corporate Bank. Investors are worried the 
problems can spread," said Boyan Gatsev, a trader with Varchev 
Finance.  
    Greece's National Bank said it had not seen any deposit 
outflows at its unit in Bulgaria and it had no exposure to 
Corpbank. A spokesman for Raiffeisen Bank International 
 RBIV.VI  in Vienna said there were no problems at its Bulgarian 
business.  
    The bank run has revived painful memories of the sector 
crisis of the 1990s that bankrupted 14 banks and comes at a bad 
time for the minority government, which has struggled to revive 
economic growth and stem a sharp drop in foreign investment.  
    Ongoing political instability prompted Standard and Poor's 
to downgrade Bulgaria's sovereign credit rating to one notch 
above junk earlier in June.  
    The leader of the main opposition party said Bulgaria should 
call upon the expertise of the International Monetary Fund.  
    "The IMF should be called immediately. This is the only 
option. The next budget should be prepared by the Fund," said 
Boiko Borisov, whose centre-right GERB party is tipped to win 
most votes in the general election.  
    But economists played down the risk of an economic crisis in 
Bulgaria, saying its banking sector was still relatively solid 
and its government borrowing was very low, giving it leeway if 
it were ever called upon to support the country's banks.  
    Asked about the possible involvement of the IMF, Finance 
Minister Chobanov said: "Let's try to deal with our own forces 
and have more confidence in our abilities." 
    Although the cost of insuring Bulgarian government debt rose 
last week, the government has managed to launch a 1.5 billion 
euro bond sale needed to roll over existing bonds and finance 
the budget deficit - a fact Chobanov said proved "the stability 
of the banking and financial systems". 
 
 (Additional reporting by Angel Krasimirov, Matthias Williams, 
Stoyan Nenov and Sujata Rao; writing by Gareth Jones; editing by 
Tom Pfeiffer and Robin Pomeroy) 
 ((matthias.williams@thomsonreuters.com)(Reuters Messaging: 
matthias.williams.thomsonreuters.com@reuters.net)) 
 
Keywords: BULGARIA BANKS/