EU approves €1.75bn state aid to 'stabilise' Bulgarian banking system

 European commission takes steps to 'ensure sufficient liquidity' in Bulgarian banking sector. Gerald Callaghan reports

By Gerald Callaghan

01 Jul 2014

The European commission has approved a request from Bulgaria to provide a credit line of €1.75bn to support the country's banks as they come under speculative attack.

On 29 June 2014, the commission approved a liquidity support scheme for Bulgarian banks as being compatible with EU state aid rules. The EU executive ensured the liquidity measure would stabilise the Bulgarian banking system.

However, in the past week, there have been runs on two of Bulgaria's large banks. "The commission concluded that the state aid implied by the provision of the credit line is proportionate and commensurate with the need to ensure sufficient liquidity in the banking system in particular circumstances," said a commission statement.

They confirmed the country's banking system was essentially sound, saying Bulgaria is "well capitalised and has high levels of liquidity compared to its peers in other member states".

"For precautionary reasons, Bulgaria has taken this measure to further increase the liquidity and safeguard its financial system," the commission statement said.

"For precautionary reasons, Bulgaria has taken this measure to further increase the liquidity and safeguard its financial system" - European commission

On 20 June 2014, a bank run forced the Bulgarian authorities to temporarily close the Corporate Commercial bank, which is now undergoing an asset quality review. As attacks on the banking system continued, in the following days a bank run took place on First Investment bank, triggered by electronic media messages.

The bank then paid out a significant amount to depositors before closing temporarily in the early afternoon of 27 June to replenish liquidity in the branches and ATMs.

This prompted the Bulgarian central bank to urge all state institutions to work together to protect financial stability in the country. The Bulgarian government vowed to take legal action against those spreading "untrue and ill-intentioned rumours" about the health of the banking sector.

The national security agency said it had arrested five people suspected of spreading false information about the health of banks by sending random emails and mobile phone messages to customers.

According to the commission, First Investment bank will be provided with ample liquidity under the state aid scheme to ensure its ability to reopen on 30 June. The commission is in contact with the Bulgarian authorities to closely monitor the situation.

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