Sofia: Bulgaria’s finance minister spoke to the head of Oman’s sovereign wealth fund on Friday about help for Corporate Commercial Bank and said the government now hoped to engineer a private rescue rather than a state bailout of the failing bank.

Corpbank, was forced into the control of Bulgaria’s central bank in June after depositors unnerved by reports of shady deals by the bank’s main owner withdrew more than a fifth of its total deposits. A subsequent audit showed activities at the bank “incompatible with the law and good banking practices” according to the central bank.

A shareholder rescue was Prime Minister Plamen Oresharski’s first proposal for the bank, but he said it looked unlikely after Russia’s VTB bank, which owns just under a tenth of Corpbank, declined to provide more money.

Bulgaria then estimated the public rescue cost at about 1.5-2 billion levs (Dh5 billion, $1.38 billion) but its planned bailout — under which Corpbank would collapse, its assets move into a subsidiary and depositors’ money be guaranteed by the state — has been opposed in parliament. The bailout could involve Bulgaria raising new debt at the expense of its budget deficit.

Help from wealth fund

Bulgaria’s finance ministry issued a statement on Friday saying that Finance Minister Petar Chobanov spoke by telephone to the head of Oman’s sovereign wealth fund — which owns a third of Corpbank — about the prospect of the fund helping out.

Bulgaria’s original bailout package would likely have enforced losses on the Omanis, as well as VTB and Corpbank’s main owner — wealthy Bulgarian businessman Tsvetan Vassiley, who has denied the allegations against him.

Friday’s phone call revealed that the Omanis, who have never publicly commented on the troubles at Corpbank, are still at least considering putting money towards a rescue, according to the finance ministry statement.

“Finding a private solution to the problem that does not engage public resource is the most desired outcome of the situation,” the statement said. “Both sides reiterated their readiness to make efforts to find such a solution.” Chobanov told Abdul Salam Al Murshidi, the chief executive of the State General Reserve Fund of the Sultanate of Oman, that current shareholders would be given the chance to provide the necessary capital and liquidity to the bank and that the state would only intervene if that proved impossible.

Corpbank’s top shareholder Vassilev has denied the allegations against him and claimed the bank run was a plot orchestrated by his rivals.

Serious felony

Bulgaria’s central bank has said prosecutors will have to determine whether Vassilev’s withdrawal of 206 million levs from the bank, via a third party, amounted to theft. Four bank officials have been arrested since the audit, which the central bank said proved “serious felony” had taken place.

The crisis spread quickly to another lender, First Investment Bank, and forced Sofia to set up a protective $2.3 billion credit line for its banks and look to Europe to help supervise its lenders.

The central bank will continue to control Corpbank until Sept 21, but there is still no political consensus on how to rescue it, including to what extent its depositors and bondholders will be protected.

The situation is further complicated by the fact that Bulgarian Prime Minister Plamen Oresharski’s technocrat government is due to step down next week after the ruling Socialist party’s poor showing at the European Parliament elections in May. A snap election is due to be held in October.