Bulgaria makes arrests over bank runs

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Bulgaria1

Reuters.

People queue outside the main office of Bulgaria's Corporate Commercial Bank in Sofia June 20, 2014. Adverse media reports triggered a bank run on Bulgaria's Corporate Commercial Bank (Corpbank) this week, the central bank governor said on Friday, appealing to depositors at the country's fourth largest lender to keep calm. The central bank said it had taken control over Corpbank's operations for a period of three months and removed its management and supervisory board, but stressed that the bank was not bankrupt.

Sofia - Bulgarian authorities said on Sunday they had detained three more people on suspicion of plotting to destabilise the country's banking system by spreading false information about the health of its commercial banks.

The arrests, which follow the detention of two men on Saturday on the same grounds, are part of a criminal investigation launched after depositors on Friday rushed to withdraw savings from a second bank in the space of a week.

The run on First Investment Bank, Bulgaria's third largest lender - which bankers and economists say is well-capitalised - prompted the central bank to warn of a deliberate and systematic attack on the banking sector.

Last weekend, the central bank took over Bulgaria's fourth largest lender, Corporate Commercial Bank (Corpbank), after customers, who were rattled by online and media reports of suspect deals involving the bank, rushed to withdraw their savings.

The bank has denied any wrongdoing.

The run on Corpbank has shone a light on weak economic governance in Bulgaria which joined the European Union in 2007 but remains its poorest member state and one of its most corrupt.

On Friday, leaders of the main political parties set October 5 as the date for a snap parliamentary election, putting an end to weeks of political uncertainty that has coincided with the bank runs.

Prime Minister Plamen Oresharski's Socialist-led minority government is expected to resign shortly.

In power for barely a year, it has been plagued from the start by mass street protests and allegations of graft and has been unable to enact reforms urgently needed to revive a sluggish economy.

 

BANKING SYSTEM “STABLE”

Party leaders were due to begin consultations with President Rosen Plevneliev at 2 pm (13:00 SA time) on Sunday on how to maintain political and economic stability until the election.

The president, a largely ceremonial figure who nevertheless has an important role to play at times of political instability, is expected to approve the election date.

He may also appoint a caretaker administration once the Oresharski cabinet resigns.

Plevneliev, Oresharski and the central bank have all urged Bulgarian citizens to stay calm and to have faith in the integrity of the country's banking system.

Despite its political and economic problems, Bulgarian and international economists say the Balkan country of 7.5 million people is not in danger of an economic meltdown.

Bulgaria has one of the lowest levels of debt in the EU, its central bank is widely viewed as effective and well-run and the lev currency is tied to the euro via a currency board, which means it is shielded from turmoil in financial markets.

One of the men detained on Saturday over the bank runs, a resident of the Danube city of Ruse, had called for the scrapping of the currency board, the national security agency said.

However, there is a broad national consensus in Bulgaria on the role of the board as a bulwark of stability.

It was introduced in the mid-1990s after a financial crisis triggered hyper-inflation and wiped out many of the country's banks.

“The banking system is stable and there is no need of a new loan from the International Monetary Fund at the moment,” Petar Ganev of the Sofia-based Institute for Market Economics said.

“The credit rating of the country remains high despite the current panic ... Bulgarian banks maintain liquidity, which is higher even than European banks.

It is below 10 percent in Europe while some banks in Bulgaria have 20 percent liquidity, which is why the First Investment Bank was able to cope in this critical situation and to pay out 800 million levs in one day.”

“The most important thing at the moment is for people to defy deliberately engineered mass panic and to avoid aggravating the situation,” said Ganev. - Reuters


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