Government decides to effectively bail out First Investment Bank to meet ERMII criteria

Finance Minister Vladislav Gouranov announced today the state-owned Bulgarian Development Bank will buy 140 million leva worth of First Investment Bank shares. The FIB is selling 200 million worth but the European Commission has said that if the state buys anything above 70%, the commission will consider this bailout.

FIB’s problematic capitalization was the last obstacle to Bulgaria entering the so-called Euro waiting room – the ERMII and the European Bank Union. Last year stress tests concluded two out of six tested Bulgarian banks lack sufficient capitalization. One was FIB, the other – InvestBank. The latter has since fulfilled the recommendations following the stress tests and is now in the clear. FIB, however, has failed to meet the criteria.

FIB had to increase its capitalization by 263 million by the end of April of 2020. In mid-April – after a failed attempt, when the Financial Supervision Commission blocked FIB from entering the stock market – the bank was finally permitted to emit 40 million 5-leva shares for a market price of 2-3 leva.

Investors had until June 10 to declare an interest in the shares, something that seemingly failed to happen. But apparently the government had been standing by in case no one wanted to capitalize FIB, and stepped in at the last minute.

Still, FIB had to find the other 60 million leva – or about 30% of the 200 million – from private investors. Officials assure the shares are ordered, but the buyer – or buyers – is still unknown.

PM Boyko Borissov said the state is stepping in only under the condition FIB buys the shares back one day with interest. He assured this way the state or the Bulgarian Bank for Development are not at risk of any loss.

"This is something that must be explicitly written," the PM said.

Unfortunately, the PM did not provide any concrete facts or terms to elevate these remarks to anything more than wishful thinking on his part.