Fitch: Runs on Bulgarian Banks Flag Governance Risks

Finance | July 3, 2014, Thursday // 12:06|  views

Photo by EPA/BGNES

Liquidity risks are heightened for all Bulgarian banks following two bank runs in quick succession, rating agency Fitch said Wednesday.

In a message posted on its website, Fitch stresses that "corporate governance problems at domestically owned companies" were highlighted by events at the two largest Bulgarian-owned banks.

"Domestically owned banks are more vulnerable to a loss of depositor confidence because of their corporate governance weaknesses," the agency also argues.

Fitch however made clear "the run at FIBank was triggered by electronic media messages, rather than credit fundamentals."

Its statement came after Corporate Commercial Bank (KTB) and First Investment Bank (FIBank) faced large-scale asset withdrawal on two consecutive Fridays following rumors they might fail.

Fitch reminds that FIBank's low (b-) Viability Rating given earlier by the agency was a result of "poor corporate governance, including potential related-party lending". (The Viability Rating measures the borrowing capacity of a certain bank and the likelihood of its failure in the agency's view.)

It points political stability as vital for reducing risks to financial stability.

But "political uncertainty is likely to persist in the near term", Fitch argues, explaining that Bulgarian President Rosen Plevneliev will dissolve Parliament on August 6 and call elections on October 5.

The agency praises the action of authorities which "took action quickly" at FIBank.

It describes the intervention and Sofia's decision to provide liquidity support for the bank as "in line" with its expectations which were reflected in its BB- rating.

Fitch rates FIBank (and not KTB), as it is the largest Bulgarian-owned bank and the second-largest Bulgarian bank by retain deposits.

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Tags: FIBank, KTB, Fitch, Rosen Plevneliev, liquidity, interim government, parliament, banks, domestically owned companies


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