* 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 close)
By Matthias Williams and Tsvetelia Tsolova
SOFIA, June 20 (Reuters) - 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 start immediately.
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 Pfeiffer