Bulgaria Has Resources to Stop Run on Banks, President Says

Photographer: Craig Warga/Bloomberg

Bulgarian President Rosen Plevneliev said the country will keep its currency board system, which requires that lev in circulation are covered by foreign exchange reserves. Close

Bulgarian President Rosen Plevneliev said the country will keep its currency board... Read More

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Photographer: Craig Warga/Bloomberg

Bulgarian President Rosen Plevneliev said the country will keep its currency board system, which requires that lev in circulation are covered by foreign exchange reserves.

Bulgarian President Rosen Plevneliev said the eastern European nation has the resources to fight attempts to destabilize its financial system as it grapples with the worst run on banks in 17 years and prepares for early elections.

Plevneliev met with the leaders of the country’s biggest political parties and central bank Governor Ivan Iskrov, who agreed “to secure all necessary means and actions to guarantee banks’ stability,” the president told reporters in the capital Sofia today. He called early elections for Oct. 5 and said he will dissolve parliament on Aug. 6.

Bulgaria’s ruling Socialists are under pressure to resign following a poor showing in European Parliament elections May 25. The government, which took office a year ago, is fighting to keep the banking system stable as opposition politicians say current leaders have brought the country to the brink of ruin and police make arrests on charges of spreading rumors to destabilize the country’s finances.

In the past two days, police have arrested seven men on suspicion of spreading “false, ill-intended information against Bulgarian banks to destabilize the banking system,” the State Agency for National Security said on its website.

The detained men used “mobile phone and e-mail messages and social media, including Facebook and YouTube, to spread rumors prompting people to withdraw bank deposits,” the agency said. It claimed some of the men owed large amounts of money to banks, and the agency is making further investigations.

‘Under Attack’

“The money of citizens and companies deposited in Bulgarian banks are secure and guaranteed,” Plevneliev said. “The banks will continue operating as usual. We have enough reserves, means and mechanisms to deal with all destabilization attempts and will stand behind each bank under attack.”

Iskrov said June 27 that the financial industry is under organized attack via anonymous e-mails, texts and rumors, threatening Bulgaria’s security. First Investment Bank AD, the country’s third-biggest lender by assets, was the target of an “epidemic of rumors and libelous public statements,” he said.

First Investment paid 800 million lev ($558 million) to clients on June 27, the bank said on its website, adding that it has “enough money in cash and financial instruments” to meet demand. A week ago, the central bank placed under supervision Corporate Commercial Bank AD, the country’s fourth largest, after a big depositor pulled out his funds. The central bank will recapitalize it and Corporate Bank will re-open in a month.

Bulgarian banks “are under criminal attack,” Plevneliev said. “Urgent actions are needed to find and punish the perpetrators and instigators of this ill-intended act.”

Lev-Euro Peg

The country will keep its currency board system, which requires that lev in circulation are covered by foreign exchange reserves, Plevneliev said. It will also maintain the current lev-euro peg at 1.9558 until it adopts the euro. Bulgaria hasn’t set a target date for euro-area entry.

Bulgarian Finance Minister Petar Chobanov appealed to politicians yesterday to refrain from attacks on the banking system in their campaigns. Former Prime Minister Boyko Borissov, whose Gerb party won the European Parliament vote, now seeks re-election.

“The overemotional political messages of Gerb leader Boyko Borissov lead to destabilization of the country,” Chobanov said yesterday in a live broadcast on National Television. He said they have become “uncontrollable and incompetent statements on such sensitive subjects as the financial security and stability of the country. This kind of political pressure on society causes panic.”

‘Catastrophic State’

Chobanov was responding to a statement made by Borissov in an interview yesterday with Nova television in Sofia that Bulgaria’s “finances and bank system are in a catastrophic state as a result of this government’s rule.” He added that “when the finance minister says the banks are stable, in the language of Bulgarians it means disaster is imminent.” Borissov was reiterating statements made throughout the week.

Last week, Bulgaria sold 1.49 billion euros of 10-year Eurobonds with a 2.95 percent annual coupon, the country’s “lowest ever” in an auction, where bids more than doubled the amount on sale, the Finance Ministry said June 27. The country’s public debt, at 18 percent of gross domestic product, is far below the euro-area average of 96 percent.

“Bulgaria’s bank system is stable, well regulated and capitalized,” Plevneliev said. “There are no reasons for panic.”

The banking system is 85 percent-owned by foreign lenders, including UniCredit SpA (UCG) and Raiffeisen Bank International AG. (RBI) The nation’s banks had total profit of 306 million lev on April 30, up from 211 million lev a year earlier. The total capital adequacy ratio was 20 percent on March 30, with a first-tier capital adequacy of 18 percent, according to central bank data.

To contact the reporter on this story: Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net Andrea Snyder, Fred Strasser

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