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 - Bulgaria appears to have averted a feared banking crisis in the EU's poorest state, but analysts warn of continued instability in the face of ongoing political turmoil.

Reports of irregular activities prompted a run on the country's third and fourth largest banks - First Investment Bank (FIBANK) and Corporate Commercial Bank (CCB) - last month.

On Monday, however, the central bank said the banking sector was “functioning normally” after the European Commission approved government plans to buttress the banking system with 3.3 billion leva (1.7 billion euros, $2.3 billion) in state aid.

And economists agree that the risks to the sector, or to Bulgaria's macroeconomic stability, remain limited.

“There are no chronic problems (in the banking system),” Georgy Ganev, an economist with the Sofia-based Centre for Liberal Strategies, said Tuesday, adding that the overall banking system “has no liquidity problem at all”.

“For now, these seem to be isolated events and there are few signs of systematic stress across the Bulgarian financial sector,” London-based Capital Economics added, noting that the EU's approval of aid “should allay fears of contagion”.

Meanwhile, there has been no reappearance of last week's queues of jittery depositors outside banks in Sofia.

The run on FIBANK came after reports spread online and via mobile phone text messages that it was in allegedly dire straits.

Days before, CCB had faced accusations in the media that it engaged in dodgy lending.

For Bulgarians, this brought up bitter memories of a grave banking crisis in 1996-97, when fears about the liquidity of one lender prompted a massive bank run that left 14 banks bankrupt and sparked hyperinflation.

The country escaped default by imposing an IMF-led currency regime that protects the local currency - the lev - by pegging it to the euro at a fixed rate and obliges the central bank to cover all the money in circulation at any time with enough gold and foreign currency reserves.

However, analysts say the present situation is different from the 1997 crisis.

Bulgaria's banking sector is “well capitalised and liquid”, the International Monetary Fund said, echoing similar reassurances by the European Commission and foreign banking analysts.

Two-thirds of Bulgaria's 29 banks are foreign-owned, and the system enjoys a high liquidity ratio of over 26 percent and an overall capital adequacy of over 20 percent.

“The differences with 1997 are fundamental. Bulgaria then was weak, had very low foreign currency reserves,” said Nikolay Vassilev, a former economy minister turned investment and asset manager with Sofia-based Expat Capital.

Economists and politicians have also highlighted the country's low public debt of about 18 percent of output, and the successful placing on Thursday of a 1.5-billion-euro eurobond issue at a yield of just under 3.1 percent.

But while Bulgaria may be safe economically, its uncertain political situation will certainly cause recurrent tensions by denting trust in public institutions even further, analysts agreed.

After just 14 months in office, Prime Minister Plamen Oresharski's minority government is set to resign in the coming weeks after losing support in parliament.

A new general election - most likely to be held on October 5 - is widely expected to return to power the conservative GERB party, ousted in February 2013 after nationwide protests.

“The crisis of confidence in Bulgaria's banking system should be contained but political uncertainty is likely to persist,” a BNP Paribas analysis said.

“Strong political noise ahead of early general elections will pose distinct risks,” Societe Generale also said, noting the “unsupportive political scenery” in the EU member state.

“The government is crushed by growing public mistrust in it and this leads to cataclysms,” the economist Ganev warned. - Sapa-AFP