BULGARIAN BANKS: DIGITAL RUMOURS - WHAT CAUSED A RUN ON TWO OF BULGARIA'S LARGEST BANKS?

WHEN the IMF visited Bulgaria’s capital Sofia in early June its verdict on the banking sector was that “the system is stable and liquid”. By the end of the month Bulgaria faced a financial crisis, thanks to runs on First Investment Bank (FIB) and Corporate Commercial Bank (CCB), the country’s third and fourth-largest lenders respectively.

It all started with a public spat between Tsvetan Vassilev, CCB’s largest shareholder, and Delyan Peevski, a controversial businessman. Mr Peevski suddenly removed large sums from CCB, which triggered a run on the bank. After more than 20% of the bank’s deposits had been withdrawn, Bulgaria’s central bank put CCB under supervision and suspended its operations on June 20th.

A week later, FIB was the target of another, seemingly unrelated, bank run. On June 27th rattled depositors withdrew around 800m lev ($550m) in a matter of hours. Bulgaria’s authorities appealed for calm and arrested several people suspected of instigating the crisis. Rosen Plevneliev, the president, said on June 29th that Bulgarians’ savings were safe and that there were “no reasons for panic”. On June 30th the European Commission, the EU’s executive body, approved a request by the Bulgarian government to extend an emergency credit-line of 3.3 billion lev to local banks.

FIB customers panicked after they received anonymous e-mails, social-media posts and mobile-phone messages fanning fears about the safety of their deposits. Bulgarians have bitter memories of a banking crisis in 1996-97 when 14 banks went under in a little over a year. One of the e-mails said that other banks “are in very bad condition and even a small percentage of withdrawals would push these institutions into bankruptcy.”

To make matters worse, Bulgaria also faces a political crisis: on June 29th, the president announced that he will dissolve parliament on August 6th and call elections for October 5th. The Socialist-led government of Plamen Oresharski has been the target of daily street protests against corruption since it took office in May 2013. “There is no banking crisis, but a crisis of confidence and a criminal attack,” said Mr Plevneliev.

Analysts reckon that the banking system should be stable thanks to its ample liquidity and one of the highest capital-adequacy ratios in Europe. But the bank runs reveal how little Bulgarians trust their institutions.

Source: The Economist