* Follows reports of shady deals involving top shareholder
* Central bank to take control for three months
* Says no fear of contagion to other lenders
* Hungary's OTP, Greece's NBG both say no impact on ops
* Bulgarian credit default swaps rise to 6-month high
(Adds banker and depositor quotes, details, background, market
By Matthias Williams and Tsvetelia Tsolova
SOFIA, June 20 A run on Corporate Commercial
Bank (Corpbank) prompted Bulgaria's central bank to
take control of the country's fourth-largest lender on Friday
and its governor appealed to depositors to stay calm.
The Bulgarian National Bank (BNB) said it would handle
Corpbank's operations for three months and removed its
management and supervisory board after the run, which was
sparked by media reports of shady deals involving the bank.
The BNB said it acted after Corpbank said on Friday morning
it had stopped all payments and bank operations due to a
liquidity drain. The central bank said Corpbank was not bankrupt
and other lenders in the country were safe from the effects.
"As you know, there has been a lot of talk about the bank
and one of its shareholders, which triggered bank runs," central
bank governor Ivan Iskrov said at a news conference. "It is very
important to be very careful when we talk about banks. Let's not
tear down our house alone unnecessarily."
"Let me make this very clear. Corporate Commercial Bank is
not a bankrupt bank. We are acting swiftly to avoid a
bankruptcy," said Iskrov.
He declined to give further details of the bank's problems
and said supervisors would carry out a full audit of its books.
The central bank action did not stop dozens of people from
queuing outside the main office of the bank in the capital Sofia
on Friday, and credit default swaps on the country's debt hit a
six-month high on fears of contagion. Sofia's blue-chip shares
index closed at its lowest level since February.
The central bank blocked depositors from withdrawing cash
after it took control.
"We are worried, because my husband and I have deposits
there in euros and in U.S. dollars," said Lilia Polova, editor
at a lifestyle magazine. "These are our family savings. He was
reading newspapers and was asking me to take our money out of
there ... but I waited."
Bulgaria's stock exchange suspended Corpbank from trading
and the country's financial regulator ordered that the shares
remain suspended until Wednesday next week in order to protect
investors and stabilise the market.
Iskrov said Corpbank depositors stepped up withdrawals after
an anonymous letter leaked to Bulgarian media said the central
bank's deputy governor in charge of banking supervision was
being investigated by prosecutors for abuse of office.
The central bank has since confirmed the investigation and
said the deputy governor had taken a voluntary leave of absence.
Reports in Bulgarian media linked the investigation of the
deputy governor to allegations of corruption at Corpbank.
In an interview with a Bulgarian TV news channel, whose
contents were published by Corpbank on Thursday, Corpbank's top
shareholder Tsvetan Vassilev denied any wrongdoing on his part
or the bank's.
"We are a responsible bank both towards our client
depositors and Bulgarian business," he said. Corpbank said on
Thursday that Vassilev was ready to cooperate with the
investigation into the bank's affairs.
A spokeswoman for Corpbank said on Friday that she was not
allowed to make statements without the central bank's approval.
She said she did not know Vassilev's whereabouts and in any case
would not be allowed to share such information.
The leading shareholders in the Sofia-listed bank are
Vassilev, with just over half the company, Oman's sovereign
wealth fund with around 30 percent and Russia's VTB Asset
Management with nearly 10 percent, Thomson Reuters data showed.
Friday's move by the central bank was the first such
intervention since Bulgaria's 1996-1997 financial crisis, which
led to the bankruptcies of 14 Bulgarian banks and forced the
introduction of a currency board regime in the country.
The bank run comes at a bad time for Bulgaria's government,
which is preparing for an early election after the ruling
Socialists suffered a bad result in European Parliament
elections and a junior coalition partner withdrew its support.
Political instability in the European Union's poorest state
has smothered reforms needed to spur economic growth and tackle
high employment. Standard and Poor's downgraded Bulgaria's
sovereign credit ratings last week to a notch above junk.
The government said it was ready to support efforts to
stabilise Corpbank. Shareholder VTB also expressed interest in
lending support, and the central bank said talks with VTB would
Iskrov was quick to play down concerns that the panic could
spread to other lenders in the region, which sits on the edge of
a euro zone still recovering from its own financial crisis.
He said Bulgaria's banking system was not interlinked enough
for Corpbank's problems to spread.
There are 29 commercial banks operating in Bulgaria and some
three quarters of the banking system's assets are foreign-owned.
Among foreign banks with operations in Bulgaria are UniCredit
, Raiffeisen Bank, Hungary's OTP,
National Bank of Greece, Eurobank and Alpha Bank.
OTP said the situation was "isolated", and National Bank of
Greece and Eurobank both said their
Bulgarian units were not experiencing any problems.
Bulgarian bank deposits in local and foreign currency are
guaranteed up to 196,000 levs ($136,600), or 100,000 euros by
law. The central bank will launch talks with shareholders to
calculate the support the bank will need, Iskrov said.
"There is no spillover effect. I think that if the central
bank and the government take fast measures there will be none,"
said Levon Hampartzoumian, chief executive of Unicredit Bulbank,
Bulgaria's largest lender and head of the Association of
Commercial Banks in Bulgaria.
"There is no similarity to the 1996 crisis, when there were
serious cross-banking exposures," he told Reuters.
($1 = 1.4349 Bulgarian Levs)
(Writing by Pravin Char and Simon Jessop; editing by Tom