Bulgaria asks IMF for financial system review after bank woes

SOFIA Fri Aug 8, 2014 2:40pm EDT

Related Topics

SOFIA Aug 8 (Reuters) - Bulgaria's central bank has asked the International Monetary Fund to carry out an in-depth review of the Balkan country's financial sector following its worst banking crisis since the 1990s, it said on Friday.

Bank Governor Ivan Iskrov requested that the IMF conduct the assessment as part of its regular staff visit later this year or before it, in an effort to boost confidence in the banking system, the central bank said in a statement.

The central bank seized control of Bulgaria's fourth-largest lender Corporate Commercial Bank in June after a run on deposits, and shut down its operations. As panic spread and a run started on another lender, the authorities freed up an emergency credit line to support the financial system.

In a letter to the IMF, Iskrov said his institute had taken the necessary steps to deal with the situation at Corpbank and limit its impact on Bulgaria's other banks, saying that the banking system was in good health and was functioning properly.

"Despite that, a timely mission of the IMF ... will help recover the trust in the banking system and maintain fiscal stability," the central bank said.

An interim government, which took office earlier this week, had said that seeking an IMF assessment would help restore confidence in the country, which has delayed a final decision on Corpbank until mid-October pending an audit.

The banking crisis hit at a time of heightened political instability, with an election planned for Oct. 5, and has put renewed scrutiny on the investment climate in the poorest and one of the most corrupt economies in the European Union.

The IMF carried out a similar review in Bulgaria in 2008. Under it, the Fund examines the soundness of the financial sector, conducts stress tests and rates the quality of bank, insurance, and financial market supervision against accepted international standards.

The programme is designed to evaluate the ability of supervisors, policymakers and financial safety nets to respond effectively in case of systemic stress and identify the main vulnerabilities that could trigger a financial crisis. (Reporting by Tsvetelia Tsolova; Editing by Crispian Balmer)

FILED UNDER: