Political Turmoil in Bulgaria Will Continue to Pressure Banking Sector

On June 30, the European Commission approved a Bulgarian government decision to extend a 3.3 billion-lev ($2.3 billion) credit line in support of Bulgarian banks. Sofia's request for EU authorization came after many customers withdrew their deposits from the country's third- and fourth-largest banks following a wave of rumors about the health of the Bulgarian banking sector. There is an ongoing and deepening political crisis in the country — Bulgaria will hold its second early elections in less than two years in October.

With no end in sight for Bulgaria's political crisis, its banking sector is likely to remain under pressure through the rest of the year. While a spread to other European countries seems unlikely at this point, it will be important to watch foreign-owned banks — already facing difficulties elsewhere in the region — that have operations in Bulgaria.