* Says there is an attempt "to destabilise the state"
* Bank run revives memories of sector crisis in 1990s
* First Investment Bank shares down 24 percent
* Political parties agree to hold snap election on Oct 5
(Adds finance minister, paragraphs 15-16, 31; more background)
By Tsvetelia Tsolova and Gareth Jones
SOFIA, June 27 Bulgaria's central bank said on
Friday there was a systematic attempt to destabilise the country
through attacks on the banking system and vowed to protect
Depositors queued in the capital Sofia to withdraw funds
from one of the country's biggest banks and its shares slumped,
worsening a crisis that has shone a light on weak economic
governance in the poorest European Union state.
Last week, the central bank took control of Corporate
Commercial Bank (Corpbank) after a run on deposits
sparked by media reports of suspect deals involving the bank and
its top shareholder.
The central bank said Corpbank's problems were isolated.
Economists and Fitch Ratings agency also played down the risk of
contagion, while foreign banks with subsidiaries in Bulgaria -
accounting for more than two thirds of the Balkan country's
banking system - insisted their operations were safe.
But the crisis spread on Friday as the country's
third-biggest lender, First Investment Bank, said it
was under an "unprecedented criminal attack".
Reuters witnesses saw queues of between 15 and 30 customers
build gradually after some bank branches opened on Friday in
Sofia. By early afternoon, there were around 70 people queuing
outside one central branch of First Investment Bank.
The bank said depositors withdrew about 800 million levs
($555.88 million) and announced it would close all branches at
1200 GMT until Monday for "logistical reasons". It said it had
enough funds to meet clients' demands.
A spokesman said Internet banking services and cash machine
withdrawals would continue to function over the weekend.
"I was told to come here and take my money out," said a
32-year-old woman in one bank queue who did not want to be
named. "I hope they do not close the doors in front of our
Interior Minister Tsvetlin Yovchev said the government was
investigating attempts to destabilise the banking system. He
said there had been a concerted phone and Internet campaign to
spread rumours about other banks.
Prime Minister Plamen Oresharski said there was no cause for
concern. On Friday, leaders of the main political parties set
Oct. 5 as the date for a snap parliamentary election, putting an
end to weeks of political uncertainty that has coincided with
the bank runs.
"The risk of a widespread run on banks increases in a
situation like this, and it's pretty important that the
authorities are on top of things," said Lars Christensen, chief
emerging markets analyst at Danske Bank.
FEAR OF CONTAGION
The crisis has knocked an already weak economy and revived
concerns about persistent corruption in the country, which
joined the EU in 2007. Many Bulgarians who lost money in a
banking sector meltdown in the late 1990s are wary of official
assurances that their savings are safe.
Both Corpbank and its biggest investor, Bulgarian
businessman Tsvetan Vassilev, have denied any wrongdoing.
Finance Minister Petar Chobanov told Bulgarian state TV late
on Friday the government was working closely with the central
bank and political parties to contain the crisis.
"I can categorically state that no banks are at risk at this
moment. The current situation has nothing to do with (the
crisis) in 1996-97, the banks are operating normally and they
have good liquidity," Chobanov said.
Comments on Thursday by a deputy from the ruling Socialist
Party that another bank may suffer a similar fate to Corpbank
accelerated the steep declines in Bulgarian bank stocks over the
past two days.
The lawmaker, Anton Kutev, told Nova TV he thought there had
been a deliberate attempt to "break" Corpbank and that "someone
is trying to pull down another bank, as far as I feel". He did
not say who might be trying to take such action.
"In recent days there has been an attempt to destabilise the
state through an organised attack against Bulgarian banks
without any reason," the central bank said in its statement. It
said First Investment Bank had been a major target.
The central bank urged all state institutions to work
together to protect financial stability and take legal action
against those spreading "untrue and ill-intentioned rumours"
about the health of Bulgaria's banks.
It condemned what it called "criminal actions (that are)
directly aimed at the savings of all Bulgarian citizens and
financial stability as an essential element of national
Shares in First Investment Bank had shed 24 percent by
market close on Friday. Other bank shares were also down
sharply. Bulgarian credit default swaps were at 121 basis
points, close to a 15-month high reached earlier this week.
The lev currency is tied to the euro through a currency
board, so is shielded from the turmoil.
"The whole banking sector is being sold off due to the
problems around Corporate Bank. Investors are worried the
problems can spread," said Boyan Gatsev, a trader with Varchev
Greece's National Bank said it had not seen any deposit
outflows at its unit in Bulgaria and it had no exposure to
Corpbank. A spokesman for Raiffeisen Bank International
in Vienna said there were no problems at its Bulgarian
The bank run has revived painful memories of the sector
crisis of the 1990s that bankrupted 14 banks and comes at a bad
time for the minority government, which has struggled to revive
economic growth and stem a sharp drop in foreign investment.
Ongoing political instability prompted Standard and Poor's
to downgrade Bulgaria's sovereign credit rating to one notch
above junk earlier in June.
The leader of the main opposition party said Bulgaria should
call upon the expertise of the International Monetary Fund.
"The IMF should be called immediately. This is the only
option. The next budget should be prepared by the Fund," said
Boiko Borisov, whose centre-right GERB party is tipped to win
most votes in the general election.
But economists played down the risk of an economic crisis in
Bulgaria, saying its banking sector was still relatively solid
and its government borrowing was very low, giving it leeway if
it were ever called upon to support the country's banks.
Asked about the possible involvement of the IMF, Finance
Minister Chobanov said: "Let's try to deal with our own forces
and have more confidence in our abilities."
Although the cost of insuring Bulgarian government debt rose
last week, the government has managed to launch a 1.5 billion
euro bond sale needed to roll over existing bonds and finance
the budget deficit - a fact Chobanov said proved "the stability
of the banking and financial systems".
(Additional reporting by Angel Krasimirov, Matthias Williams,
Stoyan Nenov and Sujata Rao; writing by Gareth Jones; editing by
Tom Pfeiffer and Robin Pomeroy)