UPDATE 1-Russia's VTB not interested in buying Cypriot banks

Thu Mar 21, 2013 12:48pm EDT

* VTB is the Russian bank most exposed to Cyprus

* Says losses, if any, will be only tens of mlns of euros

* Fitch says risks to Russian banks likely to be limited

MOSCOW, March 21 (Reuters) - Russia's VTB said it did not want to buy banking assets in Cyprus, as talks continue on whether Russia can help the island, whose financial system may collapse if it does not get an international bailout.

Cypriot Finance Minister Michael Sarris was in Moscow for a second day to seek investments in Cyprus' banks and energy resources to reduce its debt burden, as well as an extension to an existing Russian bailout loan.

The European Union has given Cyprus till Monday to raise billions of euros for an international bailout or face the collapse of its financial system and likely euro exit.

Asked if VTB, Russia's No. 2 bank, was interested in buying banking assets in Cyprus, where it operates via subsidiary Russian Commercial Bank, chief executive Andrei Kostin said: "No".

"Two big banks there are in a very hard situation. They need significant investments in the form of a bailout. So it's meaningless to speak in any way about us being interested."

Kostin told reporters VTB may revise its strategy regarding Cyprus operations or even shut down its operations on the island if a levy, or similar charge, was imposed.

Cypriot banks have been shut since last weekend, after the European Union proposed a tax on banking deposits as a requirement for a 10 billion euros ($12.95 billion) bailout.

Officials have said Russian investors are interested in buying control of Cyprus Popular Bank and increasing their holdings in Bank of Cyprus - the two biggest banks on the Mediterranean island.

The Cypriot government denied on Wednesday that it had struck a deal to sell Cyprus Popular Bank to Russian investors.

Ratings agency Fitch said the deposit levy or "some form of burden-sharing involving creditors of troubled banks would be unlikely to result in material losses for Russian banks."

The statement echoed comments from the Russian central bank, which does not expect the Russian banking system to be threatened by the proposed deposit levy.

Russian banks had $30 to $40 billion tied up in cross-border loans to Cypriot firms at the end of 2012 and some $12 billion on deposit with Cypriot banks, Moody's said earlier.

VTB had $13.8 billion in assets and $374 million in equity through its Cypriot subsidiary, Russian Commercial Bank, at the end of 2011, according to Moody's.

VTB has said losses from its Cyprus operations may in a worst-case scenario reach "tens of millions of euros".

Fitch said on Thursday that banks' customers would suffer most if a levy was imposed, while banks could take some hit if they advised their clients to place money with the island.

"However, Fitch would expect any such losses to be small relative to the equity of the banks affected," it said.

It is unclear when Cypriot banks will reopen. Fitch said Russian banks could face significant operational risks only if the crisis was prolonged and brokers and became reluctant to trade with Cyprus-based counterparts.

"However, we would not expect the costs of any required restructuring of trading/brokerage businesses to have a substantial impact on the overall performance of any banks affected," the agency said.

Russian banks' capital adequacy ratio, a liquidity cushion essential to absorb possible shocks, was 13.6 percent on Feb. 1, above the 10 percent the central bank requires.

Fitch also views a takeover of the troubled Cypriot banks by Russian state-owned banks as "unlikely", it said.

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