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Bulgaria's bank crisis eases after Europe approves credit line

* Fewer queue to withdraw savings from third-largest bank

* President says no reason to panic, bank savings are safe

* Central bank sees organised assault on banking system

* Central bank cuts collateral requirements for bank funding

* $2.3 bln credit line for banks gets European Commission approval (Adds central bank announcements, analyst comment, changes share price)

By Angel Krasimirov and Gareth Jones

SOFIA, June 30 (Reuters) - Bulgaria's banking crisis eased on Monday, with fewer depositors queuing to withdraw savings after politicians assured them that their cash was safe and the European Commission gave Sofia the green light to provide state aid to its lenders.

Bulgarians had flocked to branches of First Investment Bank on Friday and withdrew 800 million levs ($560 million) after a run had shut down another big lender. The central bank said criminals had tried to disrupt the financial system.

The authorities appealed for calm and arrested four people suspected of sending emails and mobile phone messages containing false information about the health of Bulgaria's banks.

Queues still formed outside branches of First Investment Bank, but they were smaller than Friday's and by lunchtime they had disappeared in central Sofia.

Approval of Sofia's request to provide 3.3 billion levs ($2.3 billion) in state aid - a precautionary measure - helped shares in First Investment Bank rise 27 percent, reversing Friday's losses.

Echoing the International Monetary Fund, the EU executive also said the Bulgarian banking system was "well capitalised" - comments that also helped to soothe the situation.

"People have clearly calmed down, which was to be expected after all the statements," said Petar Ganev of the Sofia-based Institute for Market Economics.

"However, there are still risks of new attacks against the banking system as no doubt this was a well-prepared attack ... I hope people, including the politicians, have learned from all this because it is essential to restore confidence," he said.

To ease pressure on liquidity at Bulgarian lenders, the central bank separately announced a cut in the collateral requirements for banks getting access to local currency funding, to 110 percent from 125 percent of the funding requested.

The central bank cannot extend credits to banks unless there is a liquidity risk to the stability of the banking system. Such loans cannot be extended for more than three months and need to be backed with gold, foreign currency or other high-liquidity assets as collateral.

In a second announcement, the bank also said that jitters over the health of Bulgaria's banks had eased as a result of the measures taken since Friday's bank run, adding that Bulgaria's banking sector was functioning normally.


President Rosen Plevneliev urged Bulgarians to keep faith with the banks in a national appeal on Sunday after emergency talks with political party leaders and central bank officials.

"There is no cause or reason to give way to panic," Plevneliev told a news conference. "There is no banking crisis - there is a crisis of trust and there is a criminal attack."

First Investment Bank declined to comment on how much money had been withdrawn on Monday, but the bank has said it has enough funds to meet customers' demand.

Earlier, a woman in her 60s who gave her name only as Gergana invoked Bulgaria's last big financial crisis of 1996-7, which sparked hyperinflation and the collapse of 14 banks.

"I am here because I remember what happened nearly 20 years ago," she said.

Another customer, who gave his name only as Ivan, said he would move his savings to a foreign-owned bank.

About two-thirds of Bulgaria's banks are now foreign-owned, in sharp contrast to the mid-1990s.

There were no queues of depositors outside other Bulgarian banks in central Sofia on Monday.

Last week, the central bank took control of Bulgaria's fourth biggest lender, Corpbank, whose clients include many state companies, after depositors rattled by media reports of suspect deals involving the bank rushed to withdraw their savings.

The central bank and economists said Corpbank was a special case. Corpbank has denied any wrongdoing.

The central bank also announced on Monday it would cut interest rates for depositors at Corpbank, which has shut down operations until July 21, to market levels, without offering specifics.

Before shutting down, Corpbank had offered interest rates on deposits of around 6-7 percent, compared with a country average of 3-4 percent, said Desislava Nikolova, a financial analyst with an online financial advisory network.

"The bank was offering interest rates often double the market level, so the central bank decision is not surprising," Nikolova said.


The crisis has rattled Bulgaria's fractious political class, forcing it to bury differences at a time of political uncertainty. On Friday, they agreed Oct. 5 as the date for a snap election, which was promised after May's European elections.

Prime Minister Plamen Oresharski's minority cabinet, dogged by street protests and charges of graft since it took power barely a year ago, said it would resign soon, after its main coalition partner, the Socialists, did badly in the EU vote.

Plevneliev said on Sunday he would dissolve parliament and appoint an interim government on Aug. 6, after Oresharski's resignation, to steer Bulgaria until the election.

Despite its political and economic woes, the IMF and economists have praised the stability of Bulgaria's banking system and state finances.

It has some of the lowest public debt in the EU, at about 18 percent of national output, and the lev is tied to the euro via a currency board, which is backed by a broad national consensus as a bulwark of stability. It was introduced in the 1990s financial crisis.

Although the cost of insuring Bulgarian government debt rose last week, Sofia managed to offer for sale a 1.5 billion-euro bond last Thursday - a fact Finance Minister Petar Chobanov said showed "the stability of the banking and financial systems".

($1 = 1.4331 Bulgarian levs) (Additional reporting by Tsvetelia Tsolova; Editing by Matthias Williams, Larry King)