Bulgarian Leaders Appeal For Public Calm After Bank Runs

SOFIA (Reuters) - Bulgaria's leaders have appealed to citizens not to panic and withdraw their savings when banks reopen on Monday, following runs on two major lenders that have raised concerns for the Balkan country's financial stability.

The runs on Corporate Commercial Bank (Corpbank) and First Investment Bank,Bulgaria's fourth and third largest lenders respectively, pose the biggest challenge for the European Union's poorest member state in nearly two decades.

The central bank has said there is a deliberate and systematic attempt to destabilizeBulgaria's banking system and has vowed to take all measures to protect citizens' savings. Law enforcement officials have launched a criminal investigation.

"There is no cause or reason to give way to panic. There is no banking crisis, there is a crisis of trust and there is a criminal attack," President Rosen Plevneliev said on Sunday after more than four hours of emergency talks with the leaders of Bulgaria's main political parties and central bank officials.

"These need to be overcome and those responsible prosecuted to the fullest extent of the law," he told a news conference.

The national security agency said it had arrested five people suspected of spreading false information about the health of banks by sending random emails and mobile phone messages to customers. It later released one of the five.

Last week the central bank took control of Corpbank, whose clients include many state companies, after depositors rattled by media reports of suspect deals involving the bank rushed to withdraw their savings. The bank has denied any wrongdoing. [ID:nL6N0P51HQ]

POLITICAL UNCERTAINTY

The central bank and economists said Corpbank was a special case and contagion to other banks would be limited. But on Friday depositors queued outside branches of First Investment Bank to withdraw their money. Its share price lost 24 percent.

The bank closed its branches on Friday afternoon citing logistical problems but said it had enough funds to meet customers' demand and said it would re-open as normal on Monday.

The bank runs have coincided with a period of great political uncertainty.

Prime Minister Plamen Oresharski's minority cabinet, dogged by charges of graft and street protests since it took power barely a year ago, said it would soon resign after the main coalition partner, the Socialists, did badly in EU elections.

It has agreed to a snap parliamentary election on Oct. 5.

Plevneliev said on Sunday he would dissolve parliament and appoint an interim government on Aug. 6, after Oresharski's resignation, to steer Bulgaria until the election.

Despite its political and economic woes, the International Monetary Fund and economists have praised the stability of Bulgaria's banking system and its solid state finances.

It has one of the lowest debt levels in the EU, banks are well capitalized and the lev currency is tied to the euro via a currency board, which means it is shielded from the turmoil.

There is a broad national consensus in Bulgaria on the role of the currency board as a bulwark of stability. It was introduced in the mid-1990s after a financial crisis triggered hyper-inflation and wiped out 14 banks.

"The currency board is unshakeable," Plevneliev said on Sunday, adding it would remain till Bulgaria joins the eurozone.

Another factor in Bulgaria's favor is the fact that about two thirds of its banks are now foreign-owned and can call on help from parent banks abroad if necessary.

"The credit rating of the country remains high despite the current panic ... Bulgarian banks maintain liquidity that is higher even than European banks ... This is why First Investment Bank was able to cope in this critical situation and to pay out 800 million levs ($558 million) in one day (on Friday)," said Petar Ganev of the Sofia-basedInstitute for Market Economics.