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Bulgarian Leader Rues Confidence Crisis After Bank Runs

July 4 (Bloomberg) -- Bulgarians’ lack of faith in institutions sparked runs on two banks and triggered the worst financial crisis in 17 years, the nation’s president said.

“Let me make this very clear: there is no banking crisis in my country, but there is a crisis of confidence,” Rosen Plevneliev said today in an interview with Bloomberg Television.

With low trust in institutions, rumors, attempts at destabilization and speculative attacks can “create a panic,” the president said in his office in the capital, Sofia.

The government has extended a 3.3 billion-lev ($2.3 billion) credit line to First Investment Bank AD and Corporate Commercial Bank AD, the country’s third- and fourth-largest lenders by assets, after deposits were withdrawn. The crisis prompted Plevneliev to call early elections, a year after Prime Minister Plamen Oresharski came to power following anti-austerity protests.

The central bank blames an “organized attack” of “criminal actions” for the run on First Investment Bank. Corporate Commercial Bank lost deposits because of a dispute between a majority shareholder and a large depositor, Capital newspaper reported June 18, citing unidentified people.

The yield on Bulgaria’s Eurobond due 2017 fell one basis point today to 1.636 percent, the lowest level since the central bank’s decision to bail out Corporate Commercial Bank, data compiled by Bloomberg show.

‘Fully Contained’

Bulgaria’s bank run is “fully contained,” Oresharski said in a separate interview in his office in Sofia today. “The government has ensured liquidity buffers to help the central bank support stability of the banking system.”

The Finance Ministry sold 1.23 billion lev in five-month notes at an extraordinary auction on June 30 to finance the bank support. None of the banks have tapped into the available credit line for now, Oresharski said.

“Bulgarian banks went through a kind of a real-life stress test and showed they have enough liquidity,” Oresharski said.

Oresharski said there’s no need to revise this year’s budget. With coming early elections, an interim cabinet and a dissolved parliament Bulgaria’s budget may come under pressure with revenues underperforming and a possible increase in spending, he said.

“There are risks, but they are manageable,” he said.

Growth, Instability

Oresharski reiterated the government’s economic growth forecast of “slightly more than 2 percent” for 2014. Plevneliev, however, said that the political uncertainty was affecting economic growth, which he estimated will be from 1.5 percent to 1.8 percent this year.

In the second half of the year, Bulgaria will have three governments, he said. Oresharski’s cabinet will resign near the end of the month, then Plevneliev will appoint an interim administration on Aug. 6, and a new government will take office after the elections.

“This is a very heavy political instability that has to be resolved,” Plevneliev said. “That brings instability for investors, low motivation for investment and creation of new jobs.”

Bulgaria’s economy expanded 1.2 percent in the first quarter from a year earlier, unchanged from the previous three months.

To contact the reporters on this story: Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net; Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Leon Mangasarian, James Kraus

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