Despite Assurances, Bulgaria Fears a Spillover of Troubles From Greece


SOFIA, Bulgaria — When Greece looked as if it might default on its debts early this year, Nikolay Stoyanov, a Bulgarian financial journalist, decided he had had enough of “Greek madness.” So he withdrew his modest savings from one of four big Greek-owned banks that do business in Bulgaria and moved it to his wife’s account at a German-owned lender.

He said he was not particularly worried that he might lose his money, but simply wanted to be on the safe side after following the dizzying twists and turns of the Greek debt drama as part of his daily job.

He kept his account open at a Bulgarian branch of Greece’s Alpha Bank, but now uses it only to receive his salary and pay electricity and other bills.

With Alpha and three other of Bulgaria’s top 10 banks owned by Greek lenders caught in a whirlwind of fear and panic at home in Greece, Bulgaria, a former Communist country that is today the poorest member of the European Union, has found itself under unwelcome scrutiny from financial experts and Western banks worried that Greece’s troubles could spread havoc farther afield.

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Also in their sights are Serbia, Macedonia and Romania, other nations at the center of a now-abandoned push by Greek banks to expand their operations into foreign markets.

But it is Bulgaria, where Greek-owned lenders hold around 20 percent of deposits and exporters depend on Greece for about 7 percent of their business, that “stands out as the one that has the most to lose from a potential further collapse of the Greek economy,” Morgan Stanley said in a research note in May.

Many experts agree that Greek-owned banks in Bulgaria, unlike their parent companies in Greece, are financially sound, with healthy balance sheets and large amounts of cash. They also have a better reputation than Bulgarian-owned banks, one of which — the country’s fourth-biggest lender — went bust last year in a blowout that shook the financial sector.

But what makes the Greek drama so potentially dangerous is that nobody knows what irrational and destructive forces could be unleashed if Greece fails to reach a deal with its creditors and stumbles toward a default and even an exit from the euro currency. In Brussels on Thursday, a negotiating session on the debt crisis ended without a resolution,

“If everything is messed up in Greece, you never know what madness this could create,” said Peter Andronov, the chairman of the Association of Bulgarian Banks and the country manager in Bulgaria for a Belgian banking group, KBC.

Even countries with no Greek banks or other obvious routes of contagion question the assurances of officials in Brussels and elsewhere that Greece, unlike five years ago when its crisis began, has been safely quarantined.

Opening a high-level conference last week in Slovakia on challenges to the post-Cold War order, Miroslav Lajcak, the Slovak deputy prime minister and foreign minister, warned that while Greece accounted for only a tiny portion of the European Union’s economy, a default on its debts “would send shock waves across the whole of Europe.”

President Rosen Plevneliev of Bulgaria, which joined the union in 2007 but still uses its own currency, the lev, said he was “very worried” by events next door in Greece.

But, in an interview at his offices in Sofia, the president dismissed any risk of Greece’s troubles infecting Bulgaria through its banks, insisting that Greek-owned lenders in Bulgaria have no exposure to Greek debt and face no risk of Bulgarian depositors stampeding branches to demand their money back.

“We have seen so many crises around us, there is nothing more that surprises us,” Mr. Plevneliev said, insisting that Bulgaria’s deeply entrenched sang-froid would prevent panic among depositors. All the same, he keeps his own money at Deutsche Bank in Germany, where he lived for many years, and at a local subsidiary of Austria’s Raiffeisen. But, as the owner of a home in Greece, he said he also had a bank account there to pay his bills. “We want Greece to succeed,” he said.

Mr. Stoyanov, the financial editor of Kapital, a Bulgarian business newspaper, agreed that Greek-owned banks in Bulgaria seemed sound, but cautioned that a Greek default could scramble rational calculation and lead to “uncontrollable problems.”

Customers at Greek-owned banks in Sofia, the Bulgarian capital, so far show little sign of concern. “I have no worries. I only get my pension here,” said Snejana Doktorova, a 68-year-old client of United Bulgarian Bank, which, despite the name, is Greek-owned.

Another Sofia resident, who asked to be identified only by his first name, Vasil, however, voiced concerns that show how fickle and unpredictable the trust that underpins banking stability can be. He said that he had withdrawn 10,000 euros, or about $11,000, and closed his account at the Bulgarian subsidiary of Greece’s Piraeus Bank — not out of any fear that it could go bust but out of political conviction after the victory in January elections of Syriza, the radical left-wing party now in power in Athens.

“I’m against Communists and was deeply disappointed when the Greeks elected a Communist government,” he said.

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Timeline: Greek Debt Crisis

According to calculations by Kapital based on Central Bank data, deposits in Greek-owned banks in Bulgaria fell by nearly a billion lev, around $580 million, in the first quarter of this year, the last period for which data is available. It is a small amount compared with the more than $4 billion yanked by depositors in Greece last week but, according to Kapital, is still “a little scary.”

Officials at Bulgaria’s central bank declined to comment, maintaining what Bulgarian journalists called a policy of silence on potential risks to the banking sector. “When you keep everything silent, it looks fine on the surface, but it is a bit of an illusion,” Mr. Stoyanov said.

All the same, remaining mute is perhaps a wise strategy in view of the fact that few people trust what the central bank says after its failure to stop the rot at Corporate Commercial Bank, known as K.T.B., which collapsed last summer. The governor of the central bank, who has faced relentless criticism over the K.T.B debacle, announced this week that he was resigning.

“We don’t believe in anything, including ourselves,” said Ognyan Minchev, the director of the Institute for Regional and International Studies, a research group based in Sofia.

Mr. Andronov, the bankers’ association chairman, said he understood the reluctance to discuss the risk of Greece infecting Bulgaria’s weak but stable economy. “If you start talking too much you create a panic,” he said. Greek-owned banks, he added, are entirely stable, with liquidity levels higher than the norm and no direct link to Greece “other than their owners and brand name.”

International banks, it seems, have also come to much the same conclusion, that short of a catastrophic crisis of confidence set off by a Greek default and exit from the euro, Greek-owned banks here are healthier than their parent companies in Greece.

Deutsche Bank, in its report on Bulgaria, asserted that “potential contagion is mitigated” by the Greek-owned banks’ conservative lending practices and other factors.

But it has also helped the Greek-owned banks here that Bulgarian-owned banks, many of which have been tarnished by murky connections to political figures, have such a bad image.

“They are perceived as more stable than local banks,” said Georgi Angelov, an economist at the Open Society Institute in Sofia.

Correction: June 25, 2015

An earlier version of this article misspelled the name of an Austrian bank. It is Raiffeisen, not Raiffheisen.

Correction: June 25, 2015

An earlier version of the above correction misstated the nationality of the bank Raiffeisen. It is Austrian, not Swiss.



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