UPDATE 4: Russian cbank starts bailout procedures at Promsvyazbank

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MOSCOW, Dec 15 (PRIME) -- The central bank has launched bailout of Promsvyazbank, Russia’s 9th largest by assets as of November 1, by using the Banking Sector Consolidation Fund, the authority said in a statement on Friday.

No moratorium on creditor demand fulfillment was introduced. Promsvyazbank has continued normal activities fulfilling its liabilities and signing new deals.

The central bank said it will provide money to support liquidity of Promsvyazbank and financial support to guarantee the continuity of service of the bank due to its systemic importance.

CENTRAL BANK’S COMMENT

Central Bank Deputy Chairman Vasily Pozdyshev said that the regulator plans to bail out Promsvyazbank in three months because the bank was immediately turned under control of a temporary administration from the fund for consolidation of the banking sector bypassing the first step of the bailout procedure, similar to Otkritie Financial Corporation Bank and B&N Bank.

“This step does not mean full financial recovery of a bank, it is a major step to recovery. The bank will start to comply with all regulations after these measures, and no preferential conditions will be applied to it. We expect the bank to start complying with the regulations in three months,” he said, adding that the bailout will take no more than six months in any case.

The authority sees capital injection into Promsvyazbank of 100 billion rubles under an optimistic scenario, but it will most likely require 200 billion rubles, he said, adding that bailout through the fund protects interests of creditors and depositors of the bank.

In 2008 and 2014, large amount of market loans became a problem for banks, and owners decided to include problematic companies of borrowers on the balance sheet of banks or their own companies, and had to invest in problematic assets. The share of borrowers owned by Promsvyazbank owners was too high, and it was the first of the bank’s problems, he said.

Another problem was a “chronical” lack of liquidity over the past several months, which became a trigger for the bailout, Pozdyshev said.

The combined amount of subordinated instruments of the bank stands at 100 billion rubles, and the bank may have financed the majority of the sum, and the temporary administration is to define the amount of instruments that may return to the bank after the write-off, he said.

The regulator held negotiations with owners of Promsvyazbank on financial recovery of the bank on their own, including a proposal for the central bank to provide a three-year grace period so that they could form necessary reserves, but the proposals did not satisfy the bank, he said.

The central bank ordered Promsvyazbank to form about 200 billion rubles of additional reserves. The bank formed 104 billion rubles of reserves, so it has to form about 100 billion rubles of reserves more. Current capital of the bank stands at 52 billion rubles after spending of 104 billion rubles on reserves, Pozdyshev said.

Before it announced the bailout, the central bank only provided a secured interbank loan to Promsvyazbank through B&N Bank at market conditions. The amount of such interbank loans do not exceed 30 billion rubles, he said.

Avtovazbank, which Promsvyazbank was bailing out, also needs additional capital, but the regulator will need no more than 15 billion rubles on that, he said.

The authority also expects a lesser outflow of client money from Promsvyazbank than Otkritie and B&N Bank experienced after launches of their financial recovery programs, he said.

He also said that the financial condition of Bank Vozrozhdenie is stable, and that the central bank has no problems with the bank.

On Thursday, before the announcement of the bailout, several pension funds sold shares of Promsvyazbank and bought bonds of the bank. The regulator will investigate the deals, he added.

REACTION

Co-owners of the bank Dmitry and Alexei Ananyev said in a statement that the bank is in constructive dialogue with the central bank. “The bank is in constructive dialogue with the central bank, operations of all business lines of Promsvyazbank continue.”

The businessmen said that the bailout decision was made after an order by the central bank to raise reserves. They said that unscrupulous actions of competitors, information attacks and the general market situation were the reasons why the bank ended up needing state aid.

Deputy Finance Minister Alexei Moiseyev said that the ministry does not see any risks of a domino effect from the central bank’s decision. “We see no (social) tensions, no risks (for the banking sector), no tensions because the bailout mechanism in its new version is created precisely to avoid risks.”

According to Kommersant business daily, Vozrozhdenie Bank will not be bailed out and is likely to be sold to an investor. The majority owners of the bank decided earlier in 2017 not to merge with Promsvyazbank.

The Ananyevs will probably lose the right to own large stakes in banks and occupy high-ranking positions in them, Kommersant reported.

Business daily Vedomosti reported on Thursday that the central bank demanded that Promsvyazbank raise reserves by about 130 billion rubles. Promsvyazbank denied the report and said that the information concerned a check by the central bank completed in May and that a final report has not been confirmed yet.

In August, Alfa Capital analyst Sergei Gavrilov warned clients about problems at Otkritie Financial Corporation (FC) Bank, B&N Bank, Promsvyazbank, and Credit Bank of Moscow. Since then, the central bank has launched financial recovery procedures at Otkritie FC Bank and B&N Bank.

A spokesperson for Vozrozhdenie Bank said that the bank continues normal operations and has not received any notifications from the central bank.

“Activities of Vozrozhdenie Bank are not impacted and do not depend on activities of Promsvyazbank. The central bank sees activities of Vozrozhdenie Bank as those of an independent financial organization, there are no ties of any kind with activities of Promsvyazbank, and there are no claims concerning operations of Vozrozhdenie Bank from the central bank,” the spokesperson said.

Credit Bank of Moscow and Bank Saint Petersburg withdrew ownership over 8.58% and 1.92% shares in Promsvyazbank, respectively, after returning the shares that Promsvyazbank pledged as collateral under repo deals, representatives of the two banks told PRIME.

(58.7082 rubles – U.S. $1)

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