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Bulgaria scrambles to stop bank run after EU approves aid

Bulgaria on Monday scrambled to reassure savers its beleaguered banking system was "functioning normally" after Brussels extended a credit line to stop a run on two banks turning into a full-blown crisis.

SOFIA: Bulgaria on Monday scrambled to reassure savers its beleaguered banking system was "functioning normally" after Brussels extended a credit line to stop a run on two banks turning into a full-blown crisis.

Non-eurozone Bulgaria has blamed the situation, which has raised fears of a repeat of the country's devastating banking crisis of 1996-97, on "criminals" spreading false rumours.

On June 20, the central bank closed temporarily the fourth-largest private lender, Corporate Commercial Bank (CCB), after doubts about its solvency led panicked customers to try to empty their accounts.

Late last week, more rumours online and via mobile phones sparked a run on First Investment Bank (FIBANK), the third-largest, provoking scenes of near-hysteria outside branches.

Not helping the situation is ongoing political uncertainty, with the government expected to resign after only 13 months in office in the coming weeks ahead of early elections in October.

On Monday morning, dozens of people queued outside FIBANK branches, most to withdraw their savings. They were fewer, however, than on Friday when some 400 million euros ($545 million) was taken out in one morning.

"I am indignant that people have money and can't withdraw it easily but have to wait in queues," said Ekaterina Vasileva, 67, who had been waiting in line for two hours.

"I don't trust the government or any other institution enough to believe what they say on television or radio," she told AFP.

Bulgaria's central bank said in a statement on Monday that "the tension that started Friday after an organised criminal attack against some Bulgarian banks had been overcome by the end of today".

"As a result of the undertaken measures, Bulgaria's banking sector is functioning normally," it added.

FIBANK said that it was back to its "usual working regime" by noon (1000 GMT).

President Rosen Plevneliev on Sunday was forced to deny Bulgaria's banks were on the verge of collapse, as police arrested six people for "spreading false information".

"There is not a crisis in the banking sector. There is a crisis of confidence and a criminal attack," Plevneliev said.

A state credit line proposed by the government and approved by Brussels on Monday provided for a 3.3-billion-leva (1.7-billion-euro, $2.3-billion) "liquidity support scheme" to help stricken lenders hit by people withdrawing money.

The European Commission also tried to calm the situation, saying Bulgaria's banking system was "well capitalised and has high levels of liquidity" compared to other countries in the European Union.

Analysts at Capital Economics said that they did not expect "contagion" to banks in other "emerging markets" in eastern and central Europe.

"But it does serve as a reminder that some countries' financial sectors are still fragile", Capital said.

Bulgarians have bitter memories of a grave financial crisis in 1996-97, when fears about the liquidity of one lender prompted a massive bank run that left 14 banks bankrupt and sparked hyperinflation.

Since then an IMF-led "currency board" regime has been in place, pegging the lev currency to the euro at a fixed rate, curtailing the central bank's room for manouevre on monetary policy and obliging it to keep large amounts of foreign currency in reserve.

Economists and politicians have sought to play down speculation that the current instability might force an abandonment of the currency board and a hugely damaging devaluation of the lev.

Bulgaria continues to be beset by political instability, meanwhile, with the Socialist-backed government of technocrat Prime Minister Plamen Oresharski expected to resign in the coming weeks ahead of elections likely on October 5.

Oresharski's short-lived government has been the focus of almost constant protests, with voters angry about poverty, corruption and cronyism.

The snap vote is expected to return the conservative GERB party to power, whose leader -- ex-premier Boyko Borisov -- was himself forced to resign in February 2013 after nationwide demonstrations.

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