Bulgarian central bank says banking system under attack

SOFIA, (Reuters) – Bulgaria’s central bank warned today of a systematic attempt to destabilise the country through attacks on the banking system and vowed to use everything at its disposal to protect citizens’ savings.

Shares in Bulgarian banks fell sharply for a second day on speculation that a run on deposits at the country’s fourth-biggest bank, Corporate Commercial Bank (Corpbank) , could spread to other lenders and shake Bulgaria’s already weak economy and those of its neighbours.

The central bank took control of Corpbank last week and said its problems were isolated. Economists and Fitch Ratings agency have also played down the risk of contagion, while foreign banks with subsidiaries in Bulgaria insist their operations are safe.

But comments by a deputy from the country’s ruling party on Thursday that another bank may suffer a similar fate further jolted confidence and left investors scrambling to ditch Bulgarian bank stocks.

“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 a 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.

Interior Minister Tsvetlin Yovchev said the government was investigating attempts to destabilise the banking system. Prime Minister Plamen Oresharski said there was no cause for concern.

Reuters witnesses saw queues of between 15 and 30 customers build gradually after some bank branches opened on Friday in the capital Sofia.

By late morning, 65 people were queuing outside a central branch of First Investment Bank, with a further 12 queueing at one of the bank’s ATM cash machines.

“I was told to come here and take my money out,” said a 32-year old woman in the queue who did not want to be named. “I hope they do not close the doors in front of our noses.”

Shares in First Investment Bank were down 23 percent as of 0926 GMT. Bulgaria’s third-largest bank said on Friday it had not imposed any restrictions on operations and would shortly publish a statement.

Other bank shares were also down sharply.

“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.

“CRIMINAL ACTIONS”

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.

But the bank run, sparked by media reports of suspect deals involving Corpbank and its top shareholder, has revived painful memories of a sector meltdown in the 1990s that bankrupted 14 banks, and comes at a bad time for a minority government that has struggled to revive economic growth and stem a sharp drop in foreign investment.

The affair has highlighted persistent concerns about poor governance and shadowy ties between state officials and private business in Bulgaria, which joined the European Union in 2007 but remains its poorest member state and one of the most corrupt.

Ongoing political instability prompted Standard and Poor’s to downgrade Bulgaria’s sovereign credit rating to one notch above junk earlier in June.

Both Corpbank and its biggest investor, Bulgarian businessman Tsvetan Vassilev, have denied any wrongdoing.

The chief executive of Greece’s National Bank said it had not seen any deposit outflows at its unit in Bulgaria. “NBG’s subsidiary in Bulgaria does not have any exposure whatsoever to Corporate Commercial Bank,” Alexandros Tourkolias told Reuters.

Socialist lawmaker Anton Kutev told Nova TV on Thursday 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 its statement, the central bank 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”.

In the latest of successive government attempts to calm bank depositors and investors, prime minister Oresharski issued a statement on Friday saying Bulgarians had no grounds for concern.

“The country has sufficient tools (to deal with the situation),” he said. “We will support all efforts of the central bank … not to allow any shaking of public trust in one or other institutions.”

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