site.btaEuropean Commission Approves State Aid for Bulgaria's First Investment Bank

European Commission Approves
State Aid for Bulgaria's First
Investment Bank

Brussels, November 25 (BTA) - The European Commission has found
that liquidity measures granted by Bulgaria in favour of First
Investment Bank (FIB) were in line with EU state aid rules, the
Commission said in a press release Tuesday. It found that the
measures were necessary in order to preserve the financial
stability of the Bulgarian economy and financial system. It
believes that FIB's restructuring plan will ensure that the bank
continues to be viable in the long-term without unduly
distorting competition in the Single Market.

Commissioner in charge of competition policy Margrethe Vestager
expressed hope that the decision will strengthen public
confidence in FIB. "The bank presented a sound restructuring
plan and a list of commitments, which will restore its liquidity
and ensure its long-term viability without unduly distorting
competition," she said.

The European Commission recalls in its statement that following
a bank run in June 2014, Bulgaria granted liquidity support to
FIB in the form of a state deposit of 1,2 billion leva (И 0,6
billion), as part of a Bulgarian liquidity scheme approved by
the Commission. Due to Bulgarian Treasury constraints at the
time, this deposit had a short maturity of five months expiring
on 28 November 2014. Bulgaria has now applied for an extension
of the state deposit of BGN 900 million (460 million euro) by a
maximum of 18 months (part of the deposit will be repaid within
12 months already).

The Commission found that the liquidity support for FIB was
linked to the on-going market consequences of the liquidity
crisis that occurred in Bulgaria in June and July 2014, and were
not due to a structural problem of the bank. Full repayment of
the deposit now could destabilize both the bank and the
Bulgarian financial system. The Commission has therefore
concluded that the extension until 28 May 2016 of liquidity
support of BGN 900 million provided to FIB was in line with its
Communication on State aid for banks as well as with the
tightened requirements of the 2013 Banking Communication.

In line with the conditions to benefit from the Bulgarian
liquidity scheme, FIB notified a restructuring plan on 12
November 2014. Under the plan FIB has committed to repay the
liquidity on predefined dates. Moreover, the Bulgarian
authorities provided a set of commitments to restore FIB's
liquidity, improve its corporate governance structure and risk
management policies. To limit any distortions of competition
brought about by the aid Bulgaria has also committed to several
behavioural constraints during the restructuring period, among
others that FIB will not pay out dividends, will not engage in
aggressive commercial practices nor undertake any acquisitions.

An independent trustee will monitor the implementation of the
restructuring plan and provide regular reports to the
Commission.

The Commission recalls that the difficulties of FIB emerged in
the context of a more general liquidity crisis in Bulgaria in
June 2014. Initially, on Friday, 20 June 2014, the Bulgarian
authorities had to temporarily close the Corporate Commercial
Bank (KTB). However, due to continued attacks on the banking
system, in the following days a bank run took place on FIB,
triggered mainly by electronic media messages. FIB paid out a
significant amount to depositors before closing temporarily in
the early afternoon of Friday 27 June to replenish the liquidity
in the branches and ATMs. NZ/LN/


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