UPDATE: Cbanker says Russian banking industry improves on better economy

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MOSCOW/ NEW YORK, Oct 12 (PRIME) -- The central bank sees improvements in the Russian banking sector as economy expands and the regulator eliminates weak players from the market, Central Bank First Deputy Chairwoman Ksenia Yudayeva said late on Wednesday at a Moscow Exchange forum.

“There are two factors when we speak about the banking sector – the economy and the business model. The economy is improving, and we see improvements in the banking sector. Secondly, banks, both globally and in Russia, introduce rather risky models and check risks of their operations unduly,” Yudayeva said.

“We inspect banks that were created to finance their owners, and we look at cases connected to illegal use of banks’ capitals. We eliminate the banks that are engaged in money laundering or in illegal operations from the market.”

Some banks lost licenses as their business models were not fully compliant with regulatory acts.

“Zombie-banks do not help the economy grow, they hinder it. So we had to eliminate zombie banks from the banking system to achieve consistent organic growth…That is why our policy of improving health of the banking sector is a policy of cutting the amount of banks at least in the mid-term. We do this because we want to achieve sustainable growth, which is impossible when there are many zombie banks,” she said.

Central Bank Deputy Chairman Vasily Pozdyshev said in an interview with Rossiya 24 television channel that new banking bailouts are possible, but there are no general threats to the system.

“Problems in some banks are possible, they are going to happen, but it is important to understand that there is no threat to the overall banking system, even such massive license revocations -- 350 during four years. They are massive in quantity terms. However, they do not look so massive in assets and liabilities terms, roughly 1-1.5% of the banking system’s assets annually.”

Central Bank Chairwoman Elvira Nabiullina also said earlier that the country’s banking system was stable and all banking results witnessed a positive trend.

According the Pozdyshev, Russian banks are likely to have an overall profit close to 1 trillion rubles or more in 2017. So far, 2012 was a year of historically record profit of 1.012 trillion rubles.

He also said that the central bank decides to bail out around 10% of troubled banks and there are four main resolution instruments. It will need a total of 800-820 billion rubles to bail out Otkritie Financial Corporation (FC) Bank and B&N Bank.

“All in all, we will need nearly 450 billion rubles to bail out the first of the banking groups and around 350-370 billion rubles for the second,” he said.

The central bank announced bailouts of Otkritie FC Bank and B&N Bank on August 29 and September 21 respectively, and it is now the main owner of the banks under a new mechanism to provide support to large privately-owned banks in trouble.

Pozdyshev said that the banks’ liquidity has stabilized and cash outflows have stopped.

“There was a serious outflow from Otkritie in August, and the central bank had to support it with its own liquidity. An interim administration has managed to stop it, it sends us daily reports, which demonstrated a several billion ruble inflow yesterday,” he said.

As to B&N bank, its owners’ subordinated debt will be canceled.

New Otkritie FC Bank CEO Mikhail Zadornov said earlier this week that the former owners of B&N pledged real estate assets bought with bank loans in exchange for the bailout and wrote off $226 million in their subordinated bonds this week.

Pozdyshev also said that he talked to the banks’ largest depositors persuading them not to withdraw their money.

“Yes, we had phone conversations and sent messages. This was done first on request of the clients themselves. They asked to explain what was happening, what the reason to introduce a temporary administration was, and what was to happen next,” he said.

The official said that the central bank is unlikely to return funds spent to bail out the two banks after their sale to the Banking Sector Consolidation Fund.

“We will unlikely to return (the money). It is not a secret that banks are now sold with no multiplier to their capital on average. Several years ago one could sell a bank for a sum 3-4 times bigger than its capital, now it can be sold for one capital or even with a discount… however, we are trying to reduce our costs,” he said.

(57.9210 rubles – U.S. $1)

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