A Bulgarian financial institution has been hit by a second run in one week alone. his has prompted banking authorities to issue a statement that would calm the nerves of depositors, who fear their money is in trouble amid reports that the financial system is in disarray.
The bank in question is the First Investment Bank (FIBank), the nation’s third-largest financial lender, which has been the target of media innuendos that it was short on liquidity. These rumors immediately sparked widespread panic and fear and created a run on deposits of approximately $446 million in several hours.
In order to quash any further runs, the bank had to temporarily shut down branches for so-called logistical reasons until Monday. However, the financial institution did confirm that its Internet banking services and cash machines would remain in full operation.
On this news, shares in FIBank substantially dropped by 23 percent during the Friday trading session. “The whole banking sector is being sold off due to the problems around Corporate Bank. Investors are worried the problems can spread,” Boyan Gatsev, a trader with Varchev Finance, told the BBC News.
Last week, Corporate Commercial Bank experienced a run, which caused the central bank to put it under supervision for a minimum of three months. It noted that Corpbank’s issues were an isolated matter and downplayed and possible risks.
The Bulgarian National Bank issued a statement assuring citizens that the banking system is stable and there is nothing to be concerned about.
“BNB has repeatedly underscored that the Bulgarian banking system has good indicators and operates smoothly and seamlessly. That notwithstanding, over the last days an attempt is being made to destabilize the state through an organized attack on Bulgarian banks without any grounds,” said central bank governor Ivan Iskrov. “Since yesterday, an attack has been carried out against one of the biggest among them – First Investment Bank – through an outbreak of rumors and ill-intentioned public statements. Such criminal actions are directly targeting the savings of every Bulgarian citizens and the financial stability as a basic element of the country’s national security.”
Furthermore, the central bank head urged all state institutions, including the State Prosecution, Interior Ministry and [State Agency for National Security] DANS, to coalesce to protect and defend the financial stability of Bulgarian banks and to take legal action against the culprits who are inciting “untrue and ill-intentioned rumors.”
This isn’t the first time that such an incident has taken place. During the 1990s, there was a financial sector meltdown that led to the bankruptcy of 14 banks. Officials and residents described the current situation as a painful reminder of what took place two decades ago.
Bulgaria is in the midst of political instability. The nation faces an Oct. 5 parliamentary election and Socialist Prime Minister Plamen Oresharski’s minority agreed to step down earlier this month after his party did rather poorly in last month’s European elections.
The domestic strife pushed Standard and Poor’s to downgrade Bulgaria’s sovereign credit rating to one notch above junk earlier this month.
