(Fixes garble in 22nd paragraph)
* Bulgaria may prop up Corpbank group after bank run
* Investors must give answer on support by Friday: source
* Corpbank not a risk to banking system: government
By Tsvetelia Tsolova and Matthias Williams
SOFIA, June 23 Bulgaria will nationalise
Corporate Commercial Bank (Corpbank) by July 21 if
shareholders fail to provide the country's fourth-largest lender
with the funding it needs after a run on deposits, the finance
minister said on Monday.
Customers unnerved by media reports of suspect deals
involving Corpbank and its top shareholder queued to withdraw
their money last week, prompting the central bank to take
control of the bank, freeze its operations and order an audit of
Both the bank and the top investor, businessman Tsvetan
Vassilev, have denied any wrongdoing.
The government and the central bank plan to hold talks with
Corpbank's shareholders and Finance Minister Petar Chobanov said
the shareholders would have an opportunity to provide the extra
capital that Corpbank needs.
Failing that, he said, the government stood ready to inject
capital into Corpbank through two state-run institutions - the
Bulgarian Development Bank and the Deposit Insurance Fund, and
may nationalise it by July 21 when it is due to resume normal
The top shareholders in Corpbank are Vassilev, with just
over half of the company, Oman's sovereign wealth fund, with
around 30 percent, and Russia's VTB Asset Management with nearly
"The aim is to recover the bank group and for the depositors
to receive their funds in full," the finance ministry quoted
Chobanov as saying.
The crisis has hit just as Bulgaria starts a European
investor roadshow to raise 1.5 billion euros from bond sales.
The money is needed to roll over bonds maturing in January and
finance the country's budget deficit.
Bulgarian credit default swaps (CDS) closed on Friday at 123
bps, the highest since early-December 2013, and a rise of 10 bps
on the day, according to Markit. No data was available for
The crisis is another headache for Prime Minister Plamen
Oresharski's minority government, which has struggled to revive
economic growth and stem a sharp drop in foreign investment, and
is due to resign after a poor showing in European elections in
The political instability prompted Standard and Poor's to
downgrade Bulgaria's sovereign credit rating to one notch above
junk earlier in June.
Anxious to stop panic spreading to other banks, the central
bank and the government have stressed that Corpbank was not
bankrupt, that its problems were an isolated case and that they
posed no risk to Bulgaria's banking system.
A government source familiar with the situation said the
shareholders would have to say by Friday whether they were
prepared to provide the funds for the capital increase, or
Corpbank would be taken over by the state.
The central bank has said VTB is interested in offering
support. A Bulgarian newspaper said officials from Oman were in
A spokesman for the central bank on Monday declined to
comment on this. Neither VTB nor the Omani fund have commented
since the bank run.
Bulgarian media said one cause of the run on Corpbank was a
row between Vassilev and a rival businessman.
Without naming any party, prime minister Oresharski alluded
to a dispute in an interview published on Monday as evidence
that its problems were unique.
"...the basis for what is happening is a noisy corporate
clash," Oresharski said. "I see no reason for the
destabilization of other banks."
The central bank governor Ivan Iskrov said on Friday that
Corpbank depositors had stepped up withdrawals after an
anonymous letter was leaked to media that said the central
bank's deputy governor in charge of banking supervision was
being investigated by prosecutors for abuse of office.
Bulgarian media linked the investigation of the deputy
governor to the allegations of wrongdoing at Corpbank. The
central bank has since confirmed the investigation and said the
deputy governor had taken a voluntary leave of absence.
With the scale of deposit withdrawals by customers still
unknown, it was not clear how much new capital might be needed
to prop up Corpbank, which had loans of almost 5 billion levs
($3.5 billion) as of March and capital of 622 million levs,
excluding a subsidiary it acquired earlier in June.
The funds in the state Deposit Insurance Fund, which at the
end of 2013 stood at 1.8 billion levs, were enough to cover
Corpbank's capital shortfall, the ministry quoted Chobanov as
The central bank has not yet made clear whether it plans to
leave shareholders with a residual stake in the bank, as
happened in most of bailouts sparked by the global financial
crisis, or wipe out their holdings completely, as in the 2013
nationalisation of Dutch bank SNS.
The shareholdings in Corpbank are unusually concentrated,
with the top ten investors owning more than 90 percent of the
bank, making it a different political choice to that faced by
governments that were dealing with hundreds of thousands of
small retail investors.
Bulgarians will have the choice to keep or withdraw their
deposits from Corpbank when it reopens on July 21, the finance
Bulgaria's Standart newspaper flagged concerns about how the
government would provide for 6,000 retired people who receive
their pensions via Corpbank bank, as well as state workers who
receive their salaries through Corpbank, until the bank reopens.
(Additional reporting by Sujata Rao and Laura Noonan; editing
by Tom Pfeiffer)