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Bulgaria: Investors know bank run was 'noise'

Bulgaria's government bond issue late last month is proof that foreign investors are not spooked by the recent bank run in the country, the nation's finance minister told CNBC, adding that the news was written off as "noise".

Finance minister Petar Chobanov shrugged off fears of another attack on the banks as state aid and immediate liquidity is now available and the Bulgarian public is aware that the state is backing the banks, he said.

Strong appetite for the country's first issue in two years helped Bulgaria raise almost 1.5 billion euros ($2.04 billion) days after two of Bulgaria's largest banks faced a bank run.

"We managed to sell this 10-year and the success of the bond shows that investors have confidence," he said.

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"I think the strong macroeconomics and fiscal fundamentals are also very important for the investors and they will continue to come to Bulgaria," he added.

Chobav said the country has a diversified investment base of central banks, investment and pension funds with investors from Austria, Germany and the U.K.

NIKOLAY DOYCHINOV | AFP | Getty Images

At the end of last month, Corporate Commercial Bank and First Investment Bank were faced with a run on deposits after customers of First Investment received suspicious text messages.

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Depositors flocked to the bank after they were reportedly sent phone messages telling them to withdraw their deposits, leading to long queues at branches. The bank was forced to close after some 800 million Bulgarian lev ($556 million) was pulled from accounts in the space of a few hours.

News of this sparked a run on Corporate Commercial Bank, which Bulgaria's central bank described as an attempt to undermine the country's banking system. A number of people have been arrested on suspicion of the attack on the banks.

The central bank has taken temporary control of the banks (currently set for three months) as dwindling cash reserves mean they are unable to meet their liabilities.

The EU also extended a 1.7 billion euro ($2.3 billion) credit line to prevent the collapse of the country's banking system, which is equal to 4 percent of GDP according to Oxford Economics.

Bulgaria's SOFIX's index saw its largest weekly drop, of 5 percent, since 2008, but since EU intervention shares have stabilized the market.

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"But these runs on banks may have a knock-on effect on confidence among consumers, businesses and investors. Lower confidence may lead to a reduction in investment in the short term, with a negative impact on overall growth," said economist at Oxford Economics, Chloe Parkins.

"If a decline in investment and consumption proves to be more lasting, we may have to revise down our forecasts for Q3 and Q4, which would affect growth and inflation in both 2014 and 2015," she said.