Bulgarian Lenders Under Attack, Central Bank Chief WarnsElizabeth Konstantinova
The Bulgarian central bank warned the financial industry is under organized attack by anonymous e-mails, texts and rumors, threatening the Balkan nation’s security, and urged police to find those responsible.
Central bank Governor Ivan Iskrov said that First Investment Bank AD is the target of an “epidemic of rumors and libelous public statements.” He asked prosecutors, the Interior Ministry and the State Agency for National Security to investigate. The Sofix index fell as much as 2.55 percent, its fourth consecutive decline, while First Investment, the third-biggest lender by assets, tumbled 23 percent.
“There is an attempt to destabilize the state through an organized attack against Bulgarian banks in the past days, without any grounds,” Iskrov said in a radio broadcast in Sofia today. “The attack from yesterday is aimed at First Investment Bank. It is conducted through an epidemic of rumors and libelous public statements.”
The European Union’s poorest nation is fighting what may be a concerted effort to destabilize the country before early elections take place in October. Warnings about First Investment follow last week’s closure of Corporate Commercial Bank AD, the fourth-largest bank.
First Investment paid 800 million lev ($557 million) to clients today, the lender said on its website, agreeing with the central bank that it’s been “the object of unprecedented criminally organized attack of rumors and ill-intended statements.”
“The bank has enough money in cash and financial instruments for which we need technical time to make available in the bank,” the lender said. The bank will be open for business on June 30, it said.
The Sofix was trading 1.5 percent lower at 517.36, the lowest since Jan. 7, recovering from 490.77 earlier, according to Bloomberg data. The gauge has fallen 3.8 percent this week, cutting the index’s market capitalization to 819 million lev ($570 million).
First Investment Bank shares were at 2.89 lev a share, after falling the most in one day since 2008, with traded volume nine times the three-month average.
“The stocks drop reflects the sense of instability caused by political campaign rhetoric after the central bank placed Corporate Bank under supervision,” Ilian Scarlatov, a managing partner at Mane Capital brokerage in Sofia. “The unclear situation over how long this government is going to be in office and planned early elections add to the sense of uncertainty in the country.”
Socialist Prime Minister Plamen Oresharski is preparing for Oct. 5 elections three years ahead of scheduled polls. The ruling party has come under pressure to release the reins of government after its poor showing in European Parliamentary elections on May 25.
“Bulgaria continues to look like a decent credit with low debt levels,” Peter Attard Montalto, an emerging-markets economist at Nomura Holdings Plc, said by phone from London today. “But if people start converting deposits into euros or foreign banks start withdrawing money from Bulgaria, the sovereign-credit situation will begin to look quite different.”
Bulgaria’s long-term sovereign rating was cut by Standard & Poor’s to BBB- from BBB on June 13, on par with Russia and South Africa. A “volatile” political backdrop is testing the country’s ability to overhaul its economy, S&P said. The eastern European country’s debt is rated Baa2 by Moody’s Investors Service and BBB- by Fitch Ratings.
Bulgaria sold 1.49 billion euros of 10-year Eurobonds with a 2.95 percent annual coupon, the country’s “lowest ever,” the Finance Ministry said in an e-mailed statement today.
Bulgaria’s public debt, at 18 percent of gross domestic product in April, compares with 49 percent in Poland, 76 percent in Germany and the euro-area average of 96 percent. Estonia is the only EU member with lower indebtedness, at 9.8 percent, according to European Commission estimates.
Bulgaria’s banking system had total profit of 306 million lev on April 30, up from 211 million lev a year earlier. Its total liquidity ratio was 26 percent, according to central bank data.
The banking system’s total capital adequacy ratio was 20 percent on March 30, with a first-tier capital adequacy at 18 percent, according to central bank data.
First Investment Bank is facing a run after mobile phone messages and e-mails to random clients were sent by unknown people suggesting the bank is in trouble, Interior Minister Tsvetlin Yovchev told reporters in Sofia today.
Iskrov asked all law-enforcement authorities in Bulgaria to use “the full force of law against those who spread false and malicious rumors and speculations.”
“These criminal activities are directly aimed against the financial stability, as a key element of the country’s national security,” Iskrov said.
Corporate Bank, in which Russia’s VTB Group holds 9.9 percent, faced an “enormous run on funds” two weeks ago after reports that a large corporate depositor started pulling money, Iskrov said on June 20.
“Despite increased social spending, triggered by anti-government protests, the fiscal deficit increased to only 1.5 percent of GDP in 2013 and is set to remain below 2 percent of GDP this year,” Deutsche Bank said in a June 26 report. “The 2.2 billion-euro fiscal reserve fund provides an important buffer, covering 30 percent of total public debt.”
Bulgaria’s foreign exchange reserves had the equivalent of 27 billion lev at the end of May, according to the central bank.