July 2, 2014 / 1:15 PM / 3 years ago

Confidence in Bulgarian banks restored, credit line untouched-PM

* PM says “no liquidity drain” from Bulgarian banks

* Government raising emergency credit line

* Two banks hit by runs on deposits last month

By Tsvetelia Tsolova

SOFIA, July 2 (Reuters) - Bulgaria’s prime minister said on Wednesday that confidence in the country’s banking system, hit by two runs on deposits last month, had been restored without the use so far of an emergency credit line.

The government announced on Monday a precautionary credit line of 3.3 billion levs ($2.31 billion) in state aid, scrambling to shore up banks after Bulgarians flocked to two local lenders to withdraw savings. The finance ministry sold treasury notes to raise a first tranche of 1.2 billion levs.

“There is no liquidity drain from any bank,” Prime Minister Plamen Oresharski told reporters in parliament. “The buffer that the finance ministry secured ... has not been used. This points to the fact that confidence has been restored.”

An official of the International Monetary Fund and the head of Austria’s central bank also said Bulgarian banks were sound. UniCredit Bank Austria and Raiffeisen Bank International have large operations in Bulgaria .

Bulgaria’s third and fourth largest banks, First Investment Bank and Corporate Commercial Bank (Corpbank), were hit last month by huge withdrawals by savers spooked by media reports, emails and mobile phone messages questioning the health of the local lenders.

The panic had eased by Monday, after stirring up memories of Bulgaria’s last big financial crisis of 1996-7 which triggered the collapse of 14 banks and a period of hyperinflation. About three-quarters of the country’s banks are now foreign-owned, which was not the case in the 1990s.

The central bank last month took control of Corpbank and shut it down until July 21.

The European Union gave Bulgaria permission for the emergency credit line if it was needed. Meanwhile, officials in Sofia and Brussels rushed to reassure Bulgarians that their savings were safe and the banking sector was generally in good health.

The government, which is heading for a snap election on Oct. 5, has blamed a coordinated attack and arrested seven people suspected of spreading false information. At least two were subsequently released.

“Even the peculiar ‘stress test’, which we all witnessed last week, showed that the banks withstood on their own resources,” said Oresharski.

Auditors are expected to report back soon on Corpbank. Oresharski said that, according to preliminary data, “Corpbank has a structure that is very different from the other banks”.

He confirmed that he planned to resign at the end of July, in line with an agreement between political parties to dissolve parliament on Aug. 6 and hold a snap election.

The poll was promised after May’s European election, in which the ruling Socialists fared badly. The minority cabinet has been dogged by street protests and charges of graft since it took power barely a year ago. ($1 = 1.4314 Bulgarian Levs) (Reporting by Tsvetelia Tsolova; Writing by Matt Robinson; editing by Matthias Williams)

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