Report: Central bank: Russian banks stable, within positive trend

MOSCOW, Sep 29 (PRIME) -- Russia’s banking system is stable, and all banking indicators look positive, Central Bank Chairwoman Elvira Nabiullina said in an interview with Rossiya 24 television channel on Friday.

“The banking system is stable. One should look at the general banking indicators, which characterize the banking system. They are capital sufficiency, growth of profit and lending, a decline of interest rates, reserve coverage ratios. Everything is within normal limits and even shows a positive trend,” she said.

There are some problems at select banks, but they are not systemic, she added.

The central bank also sees no risks from non-performing loans, which account for below 10%, as well.

“According to the latest data, the share stands at 5.3 trillion rubles, of which two thirds are corporate loans and one third are retail loans. The figures are stable, the share has not increased since the beginning of the year,” Nabiullina said.

OTKRITIE FC BANK, B&N BANK, BANK JUGRA

The central bank is yet to adjust capital gap of Otkritie Financial Corporation (FC) Bank with 250-400 billion rubles being a preliminary assessment, the official said.

The central bank said in August it would bail out Otkritie FC Bank and become its investor using funds of the banking consolidation fund, a newly-created mechanism.

Nabiullina said that the Bank of Russia is actively working with owners of B&N Bank, who promise to place assets on the bank’s balance books to reduce its capital gap.

“The (B&N Bank’s capital gap) assessment is preliminary… at around 250, maybe 300 billion rubles. It will not necessarily expand,” she said.

On September 21, the central bank decided to bail out Russia’s 11th largest bank B&N Bank and its affiliate Rost Bank, setting no moratorium on creditor demand fulfillment.

Bailing out troubled Jugra Bank is impossible due to a faulty business model based on aggressive attraction of retail deposits and funding projects of the bank’s owners, according to Nabiullina.

“Indeed, each time it is an individual decision, whether to use a bailout mechanism or to revoke a license. What is the reason for such a decision in this case? First, the sizes are different. Bank Jugra is not small, but it is about ten times smaller than Otkritie,” the chairwoman said.

“Second, we assess the bank’s systemic importance, which includes not only the size, but the influence on other financial and non-financial market players. Otkritie FC Bank used to be a financial intermediary… while Jugra Bank just collected household deposits… and put them into business projects linked with its owners.”

On July 28, the regulator revoked a banking license from the bank saying that financing of its bailout would have exceeded insurance payments to depositors. In August, it filed for the bank’s bankruptcy.

Nabiullina said that the central bank is likely to offer Otkritie FC Bank and B&N Bank’ shares on the open market via an initial public offering (IPO) after a bailout has been completed although it is still a matter for discussion.

“We do not need a single strategic investor. We want to make the banks public,” she said.

On Tuesday, Deputy Chairman of the Central Bank Vasily Pozdyshev said that the authority plans to complete preparation of Otkritie FC Bank and B&N Bank for a sale in two years.

STATE SHARE IN BANKING SYSTEM

The mechanism to use the banking consolidation fund for bailouts is not part of a nationalization policy, it is a temporary measure, Nabiullina said.

“There is no policy of bank nationalization, the state enters troubled banks’ capitals for some time only… the market will believe after the banks are offered on the open market,” she added.

“We endorse maximum transparency and try to attract independent directors to Otkritie FC Bank… we want to invite as many independent directors as possible so that the market could trust that (Otkritie and B&N Bank) operate properly.”

The official also said that the state’s share in the banking sector is large enough and needs to be cut. “The share must be reduced in line with the economy’s positive growth. This is a strategy.”

Nabiullina disagreed that a high market share of state-run banks forces private banks to choose high-risk business models to compete successfully.

“Private banks compete effectively with state-owned banks. The statistics demonstrate… a higher cash inflow into private banks,” she said.

BANKING SUPERVISION IMPROVEMENT

Nabiullina said that the central bank permanently improves supervision procedures and now is able to detect banks’ troubles much earlier than before.

“We have already been changing our supervision procedures actively, and I can say with all responsibility that we can see troubles much earlier. Sometimes it is impossible to support them with evidence necessary for decision making, but we can see them earlier,” she said.

“We have set up a special asset assessment service, which is divided from a decision-making mechanism -- a special team of professionals. Besides, the supervision process is more centralized now, it has changed considerably… however we need more professional judgement power so that we could value a bank’s state not by norm and quantity factors alone.”

The chairwoman said that the central bank suggests the state should prohibit unfair bankers from fleeing the country, but the idea encounters opposition.

“We are working on it. It is difficult enough to promote the idea as it is controversial. We do not give up and try to persuade our colleagues in ministries and other authorities and lawyers that it is essential,” she said.

“It is hard to find legal mechanisms as we need to find a tool that does not infringe the right for freedom of travel. A serious reason is needed to prohibit a person from leaving the country.”

(58.4255 rubles – U.S. $1)

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