Event

Early parliamentary elections have been agreed on by the major political parties in parliament and should take place early October, two years ahead of schedule. Political crisis is latent since PM Oresharski took power in May last year with public discontent following perceived corruption in public administration. Factors that precipitated the decision of early elections recently were, on one side, the strong defeat of the major ruling party, the Socialist party BSP, at the European elections, and, on the other side, tensions between the two parties of the feeble ruling coalition as to the way of managing the US and EU willingness for Bulgaria to stop the South stream pipeline construction. Alongside the political crisis, the two largest domestic banks have been subject to bank runs, in one week interval. The fourth largest bank of the country, Corpbank, has faced liquidity strains that forced it to be temporarily nationalised, following internal mismanagement and quarrel between its principal stakeholder, a politician close to the BSP, and one major borrower, a deputy from the junior coalition member, the ethnic Turkish party. Last week, the first domestic bank First Investment bank (FIBank) was also subject to a bank run, fed by supposedly false rumours, with withdrawals reaching 10% of its assets base last Friday.

Impact on country risk

Speculations and rumours from unknown sources aiming at destabilising the system are at the origin of the bank run on the FIBank. The mainly foreign-owned banking system as a whole is considered as well- capitalised and liquid and no impact has been observed up to now in the subsidiaries of foreign banks in the country. As a consequence, those events are not yet deemed to represent a systemic risk for the entire banking sector. Nonetheless, the European Commission has announced on Monday 30 June, the opening of a credit line of EUR 1.7 billion, in support of the Bulgarian banks’ liquidity and the vacuum left by the on- going political crisis does not help to reassure depositors.

Analyst: Florence Thiéry, f.thiery@credendogroup.com