Clare Nuttall in Bucharest -

Bulgaria’s central bank placed Corporate Commercial Bank (CCB) and its subsidiaries under administration on 20 June after a bank run forced the country's fourth largest lender to close its doors. The banking regulator has been at pains to insist there is no wider risk across the sector. 

Central bank  has sought to assure the public that CCB’s problems are not part of a wider crisis in the banking sector. 

The Bulgarian National Bank (BNB) announced on June 20 that it has taken CCB, Bulgaria’s fourth largest bank by assets, under administration for three months. Subsidiary Credit Agricole Bulgaria is also to be overseen by the regulator. CCB’s management and supervisory boards have been dismissed. 

The BNB “received a written notice from the management of Corporate Commercial Bank AD (CCB) that CCB’s liquidity had been depleted and the bank had suspended making payments and conducting all types of banking transactions. On these grounds and with a decision of the BNB Governing Council, Corporate Commercial Bank AD has been placed under conservatorship,” the statement said. 

The run on CCB was triggered by reports connecting BNB’s deputy governor and head of banking supervision Tsvetan Gounev with allegations of corruption at CCB. On June 18, the BNB confirmed Gounev is on voluntary leave “in connection with the opening of a criminal investigation”. 

However, even after the BNB announced it had taken over the bank, depositors continued to queue outside the head office in Sofia, according to local press reports. 

The crisis comes just a week after CCB announced it had purchased Credit Agricole Bulgaria, which was also taken under BNB control on June 22. CCB stock plunged on June 20, as news of the run spread, causing the largest fall in the Bulgarian Stock Exchange’s main index in 16 months. The exchange said ordered the suspension of trading in CCB shares for three days. 

The BNB is now seeking to reassure Bulgarians that the problems at CCB are isolated, and that deposits at other banks are safe. "As you know, there has been a lot of talk about the bank and one of its shareholders, which triggered bank runs. It is very important to be very careful when we talk about banks. Let's not tear down our house unnecessarily,” Governor Ivan Iskrov told journalists on June 20. 

"Let me make this very clear," he added. 'Corporate Commercial Bank is not a bankrupt bank. We are acting swiftly to avoid a bankruptcy.”

Elana Trading sought to back up the central bank chief. “The current situation is not expected to affect other banks in the country, as banks expositions to one another are relatively small,” analysts write in a note. The market decline, they suggests, is an “ overreaction” and a quick recovery should be expected. 

“We don’t expect that the bank will go into bankruptcy as it is too big," the analysts state. "Moreover, the banking system is sound and will not face serious liquidity problems." 

For its part, CCB has a large potential backer armed with the cash to offer support. The BNB confirmed that Russian state-controlled giant VTB Bank “has declared its interest in having talks with the BNB for possibly bailing CCB out”. CCB’s current majority shareholder is Bulgarian financier Tsvetan Vassilev, who holds 50.7% though holding Bromak EOOD. Bulgarian Acquisition Co., which is controlled by Oman’s sovereign wealth fund holds a further 30.35%. VTB holds just under 10%. 

Bulgaria has 29 commercial banks overall, and around three quarters of the banking sector’s total assets are owned by foreign investors, with major European banks such as Eurobank, Raiffeisen and UniCredit active in the country. Hungary’s OTP Bank also sought to flag up the specific nature of the problems at CCB. 

Referring to Bulgarian unit DSK, OTP said in a statement: "CCB is an isolated case, and a stable bank like DSK will rather benefit from this in the Bulgarian market in the medium term." DSK is the country's second biggest bank with a 13% market share, according to total assets.

Meanwhile, the crisis at CCB will only add to the already volatile political situation in Bulgaria. A rift with Brussels over the South Stream project, and allegations of corruption surrounding the Bulgarian section of the pipeline, has seen support for Plamen Oresharski’s embattled left of centre coalition government finally collapse. 

Having scraped into power after its centre right predecessor was felled by huge protests in May 2013, the ruling Socialist Party had already been battered in the April European Parliament elections. After consultations with party leaders, President Rosen Plevneliev said on June 17 that early parliamentary elections will now take place between September 28 and October 12.