Bulgaria is asking the European Central Bank to take over supervision of its lenders after runs on deposits triggered the worst financial crisis in 17 years.
Bulgaria’s central bank has contacted the ECB’s Executive Board to start the procedure to join the Single Supervisory Mechanism, it said in an e-mailed statement today. The request follows an announcement by President Rosen Plevneliev after a meeting with leaders of the country’s biggest parties and senior government officials yesterday.
“We have full consensus to immediately start a procedure for Bulgaria’s entry into the EU’s Single Supervisory Mechanism,” Plevneliev said. “Bulgarians can be confident that Bulgaria will continue its integration into Europe’s modern mechanisms.”
Bulgaria joins neighboring Romania, which has already started a banking industry health check required by the ECB as a preliminary step toward oversight from Frankfurt. The ECB begins to supervise euro-area lenders in November as part of a plan to prevent a repeat of the taxpayer-funded bailouts of lenders since the financial crisis.
ECB oversight is automatic for the 18 countries using the common currency. Their biggest banks are currently being subjected to a yearlong asset review and stress test, the results of which will be released in October. Non-euro states would participate by entering into a “close cooperation” agreement with the SSM.
While the ECB took note of the statements by Bulgarian authorities, it said it hadn’t been contacted formally, according to an e-mailed statement.
Bulgaria plans to send Corporate Commercial Bank AD, the nation’s fourth-largest lender, into insolvency after an audit found records missing for 3.5 billion lev ($2.4 billion) of loans. Corporate Bank saw a 1 billion-lev bank run before the central bank placed it under supervision last month. When a run on First Investment Bank AD followed, Bulgaria received EU approval to extend a 3.3 billion-lev credit line to lenders.
The central bank also said today it will keep Corporate Bank under supervision for three months after political leaders didn’t agree on a special law allowing for the compensation of its depositors above the legal limit of 100,000 euros. The central bank scrapped its plan to set up a ‘good bank’ based on a unit of Corporate Bank, which was part of the new draft law, and to re-open the lender for business on July 21.
Bulgaria’s ruling Socialists are fighting to keep the banking system stable, while opposition politicians accuse the leadership of bringing the country to the brink of ruin. Prime Minister Plamen Oresharski’s cabinet will resign at the end of the month after Plevneliev called elections for Oct. 5, three years ahead of schedule. He will dissolve parliament on Aug. 6.
Apart from Corporate Bank and First Investment, Bulgaria’s major banks are foreign-owned. Italy’s UniCredit SpA (UCG) owns the biggest. Hungary’s OTP Bank Nyrt, Greece’s Eurobank Ergasias SA (EUROB) and National Bank of Greece SA, and Austria’s Raiffeisen Bank International AG (RBI) are also among the 10 largest by assets.
In neighboring Romania, where Austria’s Erste Group Bank AG (EBS) owns the biggest lender, the central bank is analyzing the lenders’ loan books in an exercise similar to the ECB’s Comprehensive Assessment, deputy central bank Governor Bogdan Olteanu said last month. Erste cited that health check July 3, when it said it will make provisions for bad loans in Romania and will write down its subsidiary, pushing it into a loss of as much as 1.6 billion euros this year.
Poland, the Czech Republic, Hungary, Sweden, the U.K. and Croatia aren’t planning to join the banking union now. Denmark will consider its stance after the ECB’s Comprehensive Assessment. Lithuania has to adopt the SSM when it adopts the euro next year.