The Bulgarian bank system stability: a study of crisis communications
By Rossitza Donkova Bulgaria is currently in the midst of a multiple crises; first, terrible floods in the northeastern part of the country last week destroyed residential areas and properties in two big cities near the Black Sea coast and a number of resorts. The storms took 14 victims and left thousands without homes, electricity, fresh water and roads. Simultaneously, a political crisis has emerged following the European Parliament elections where an unfavorable result was reached for the ruling Socialist Party. Thirdly, as political parties sough to negotiate early elections for the national parliament, the fourth largest bank in the country, Corporate Commercial Bank (CCB), and its recently acquired subsidiary, Credit Agricole Bulgaria, were forced to request special supervision by the Bulgarian National Bank (BNB) due to a lack of liquid assets. In a move familiar to anyone who has observed the recent Eurozone banking crisis, on June 20 – and only three days after the Governor of BNB announced that CCB remains with high liquidity and capital adequacy, and is functioning normally – the central bank announced that CCB will be placed under conservatorship (special supervision) for three months, in order to increase the bank’s capital and maintain the banking group’s activities during its rehabilitation. This means the Government and BNB will provide the necessary liquidity to ensure the banking group, so it can meet its obligations to its clients. The bank will remain closed until July 21 and customers will not have access to their accounts for this period. What does this mean for Bulgarian citizens and companies? CCB which is renowned for its strong political connections (including powerful representatives from current and past governments as well as MPs from various political parties), holds the accounts for some of the major state-owned enterprises, local municipalities, key international investors and various organisations important for the economic potential of Bulgaria. On June 22, BNB issued a statement where the regulator declared that the current shareholders would have their shares written off and the bank would be recapitalized by the state-owned Bulgarian Development Bank and the Deposit Insurance Fund, which is managed by the central bank in order to “protect the stability of Bulgaria’s financial system”. One of Bulgaria’s leading financial and banking experts – Lubomir Christoff, a member of the Financial Planning Association (FPA) and European Securities and Markets Authority (ESMA) has pointed out in his blog that “the Bulgarian National Bank did not pass its own stress test*”. He thinks that the chronology of events shows that BNB is incapable and not prepared to handle the situation properly. “It is either not aware or is aware but is not announcing clearly what is actually going on with CCB. The initiative (for special supervision) is coming from CCB and not from BNB”, he writes. “This means that if BNB had already had a stress test over CCB it would be useless and inefficient”. The long term impact on Bulgaria This is just the tip of the iceberg. The effects of this banking crisis will be felt for a long time. The deep analyses of the causes that led to the current situation with CCB will be revealed in the near future, but we doubt the real reasons will be announced publicly. As communications professionals we have followed the process from the beginning as a crisis communications case study. It is quite difficult to summarize the situation, as it encompasses political influence, media ownership and its dependence on business organizations, business relationships, rumors and speculations and even death threats. How this crisis could benefit from communications consultancy We have observed that the CCB is trying to be transparent, by sending press releases, organising press conferences and giving interviews. But the events have developed quickly in just one week and while the communications seemed to be delivered on time, the messages being provided were confusing; there was too much talking without focus and clear statements. The key messages were missing. The management of the bank was clearly unprepared for the press conference and the interviews; there were too much time given to responding to rumours, which led to indirect confirmation of speculation that key Bulgarian politicians are closely involved in the situation. Meanwhile, for the state and regulatory authorities, only BNB has provided information and statements to the public. The communication was on time, but unfortunately instead of calming the depositors, it led to queues at the bank branches as people tried in vain to withdraw funds from their accounts. The Governor of BNB looked worried and nervous during his press conference, rather than giving off the impression of a man and an organisation in control of the situation. Rather than calming the situation, the press release disseminated on Sunday caused additional stress for the professional community, media and public. What we have found most interesting, however, was the huge delay in response from the Ministry of Finance and the Government, even though most of the state owned companies and organizations’ financial assets are in CCB. The general perception garnered from the Government’s behavior was a lack of support, but also something more – the impression that there is a hidden agenda even greater than the bank’s failure. Despite the current events focused on CCB, whether the reasons for the crisis are recognized or unseen, it is of utmost importance and the obligation of the Bulgarian National Bank as a state regulatory institution responsible for the Bulgarian bank system stability to deliver clear, credible and consistent communication. The question now is have we have witnessed the collapse of a business-political hybrid that ran the main processes in the country, or we are watching the birth of a new one? * An analysis conducted under unfavorable economic scenarios which is designed to determine whether a bank has enough capital to withstand the impact of adverse developments. Stress tests can either be carried out internally by banks as part of their own risk management, or by supervisory authorities as part of their regulatory oversight of the banking sector. These tests are meant to detect weak spots in the banking system at an early stage, so that preventive action can be taken by the banks and regulators.