4 Min Read
* PM stepped down after poor May election result
* Says regrets lack of support for reforms
* Bulgaria CDS rise to near three-week high
* Investors need swift solution to bank crisis: trader (Adds PM quote, credit default swaps, background)
By Tsvetelia Tsolova and Angel Krasimirov
SOFIA, July 24 (Reuters) - Bulgarian lawmakers voted overwhelmingly to accept Prime Minister Plamen Oresharski's resignation on Thursday, paving the way for an interim government to take over in August and a snap election in early October.
Oresharski's departure leaves his successor to sort out the Balkan state's worst banking crisis since the 1990s, with the fate of its fourth largest lender undecided. Bulgaria's credit default swaps rose on Thursday to their highest level since July 4, according to Markit, the financial information services company, as investors sought insurance against losses.
In power for just over a year, Oresharski resigned on Wednesday after a poor showing by his Socialist party in May's European elections. Those results had also led the Socialists' junior coalition partner to withdraw its support.
Approval of his resignation was largely a formality after Bulgaria's political parties had agreed to hold early polls. The vote was 180 approving the resignation, eight opposing, and eight abstaining.
Political instability has plagued the European Union's poorest state over the past two years. Failure to tackle problems such as endemic corruption and inefficient state firms prompted a sovereign credit rating downgrade in June.
"I do regret that we did not have enough political support and time to carry out structural reforms in healthcare, education and administration," Oresharski told reporters, speaking publicly for the first time since his resignation.
Corporate Commercial Bank (Corpbank) was hit by a run on deposits in June, forcing the central bank to take control of the lender and shut down its operations. The run then spread to another, bigger lender.
With the government gone, it is unclear how Bulgaria plans to rescue Corpbank and to what extent it will protect its depositors and dollar bondholders. Parliament had earlier rejected a proposed rescue package, which would have hived off Corpbank's good assets and liabilities to a subsidiary.
"The government's resignation has been long awaited and its effects were already calculated by investors," said Dimitar Georgiev, a trader with the Sofia-based Elana brokerage house.
"The whole political situation has been calculated already, so there is no impact on stocks today. The market needs a swift, fair and clear solution for Corporate Commercial Bank, which should contain the problem to just this bank, and a stable political environment after the October polls."
Bulgaria's Sofix index was down 0.17 percent as of 1009 GMT on Thursday, after the vote by lawmakers.
The blue chip index shot up more than 40 percent in 2013, shrugging off the resignation of a previous government and months of street protests, as investors decided its stocks were undervalued as the economy recovered.
The index has risen more than 9 percent this year, but fell to a year's low on June 27, when the bank run hit First Investment Bank, Bulgaria's third largest lender, a week after Corpbank was taken over by the central bank.
The main opposition, centre-right GERB party is expected to top the Oct 5 polls. But it may struggle to get an outright majority.
Bulgaria, a country of 7.3 million people, also needs to overhaul its education system to make its workforce more efficient and to clean up its graft-prone healthcare system.
Oresharski ruled in a minority coalition that relied on the outside support of the nationalist Attack party to survive a series of no confidence votes. The persistent instability prompted ratings agency Standard & Poor's to downgrade Bulgaria to one notch above junk in June, before the banking crisis erupted. (Writing by Matthias Williams; additional reporting by Chris Vellacott in London; Editing by Larry King/Ruth Pitchford)