UPDATE 5: Russian cbank decides to give fincl aid to B&N Bank

(Adds comment of B&N Bank, more details in paragraphs 10–11, last paragraph)

MOSCOW/VELIKY NOVGOROD, Sep 20 (PRIME) -- The central bank decided to provide financial aid to Russia’s 11th largest bank B&N Bank to support its liquidity, the authority said in a statement on Wednesday, without disclosing the amount and terms of support or mentioning a possibility of bailing out the bank.

“The Central Bank of Russia has decided to give means to support the liquidity to B&N Bank on the grounds of an application by the credit organization,” the central bank said.

Co-owner of B&N Bank Mikail Shishkhanov said earlier on Wednesday that the bank is in active negotiations on its bailout with the central bank and admitted that the bank did not cope with troubles of its affiliates Rost Bank and MDM Bank, as cited in a statement of the bank.

“We are at a stage of active negotiations with the Central Bank of Russia now. Our goal is to complete an effective financial recovery of B&N Bank and Rost Bank with the help of the central bank and with the banking sector consolidation fund. This is the best option which fully guarantees fulfillment of interests of all clients of B&N Bank, including each depositor,” Shishkhanov said.

“I have miscalculated the business power before: the issues of Rost Bank which we bailed out and of MDM Bank were significantly more serious than we assumed in the conditions of a falling market and the economic situation that we saw,” Shishkhanov said.

The board of directors of the bank will meet on Wednesday to discuss reelection of the chairman, the bank said in a statement. Current Chairman of the board Mikhail Gusteriyev was elected in February 2017. According to Shishkhanov, he will chair the board.

A spokesperson for the central bank told PRIME earlier on Wednesday that the owner of B&N Bank had asked the central bank to consider launching bailout procedures at the bank, and the authority will decide on the issue soon.

“The owner of B&N Bank has asked the Central Bank of Russia to consider a possibility of bailout via the fund for the banking sector consolidation,” the spokesperson said.

Earlier on Wednesday, business daily Vedomosti reported that the central bank is likely to announce appointment of an interim administration at B&N Bank and acquisition of the bank by the banking sector consolidation fund for bailout on Thursday.

B&N Bank and its shareholder financial group Safmar said in a joint statement that the management of the bank had been discussing possible options to improve its condition with the regulator over the past year, and made a decision on the bailout only after owners of the bank failed to find money to increase the capital of the bank.

B&N Bank has received enough money from the central bank to maintain its liquidity, it has enough funds to fulfill all liabilities to clients, and offices of the bank have enough cash to satisfy all demands from depositors, the bank said in the statement.

The Federal Antimonopoly Service’s Director Igor Artemyev said that the central bank’s activities concerning B&N Bank and Otkritie Financial Corporation (FC) Bank will not lead to more state control over the banking sector.

“The central bank will be rescuing these commercial banks anyway, and there is no task of making state-run banks of them one day… I think this will not lead to more state control of any kind. We still have a quite strong commercial sector and of course, they need to be supported as well if needed. The private sector must be kept,” Artemyev said.

Vice President of rating agency Moody’s Olga Ulyanova said that risks of a partial nationalization of the banking sector exist and that subordinated loan liabilities of a bank undergoing bailout proceedings can be written off or converted inåù the capital of the bank.

“But arguments in favor of provision of the banking system stability outweigh concerns about a further increase of the state control over it, because the Russian banking system is already by more than a half owned by the state and the central bank,” Ulyanova said.

Artemyev said that the latest banking sector events will not cause destabilization of the Russian economy or an increase in inflation because “a real macroeconomic stability exists in Russia.”

He also said that the Russian banking sector is not going to face a bubble like the U.S. and global banks did in 2008 after a crash of Lehman Brothers.

Construction Minister Mikhail Men said that the bailouts of B&N Bank and Otkritie FC Bank will not affect the stability of the construction industry. “We already have some experience. As a rule, if a bank is bailed out, households who took mortgages or held their money with a bank have no problems. Let’s hope that the same will happen this time. We will turn to the central bank as a last resort,” he said.

Promsvyazbank, mentioned earlier in a newsletter by Alfa Capital analyst Sergei Gavrilov as a bank having troubles, as well as Otkritie FC Bank, B&N Bank and Credit Bank of Moscow in August, is unaffected by the B&N Bank situation and is operating stably, a spokesperson for the bank told PRIME.

“The mentioned scenario will not affect Promsvyazbank. The state of the bank is stable, the resource base is diversified. We have registered a significant amount of a state money inflow even this month, a most uneasy one from the point of view of the information background, which signals stability of the client base and market trust,” the spokesperson said.

A representative of Credit Bank of Moscow also denied any negative impact from the possible bailout of B&N Bank. “There are no risks for direct losses of Credit Bank of Moscow. Any impact may be made only by the general negative condition of the market,” the person said, adding that there is no panic among clients of the bank.

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