September 1, 2017 / 10:07 AM / a year ago

Fitch: Otkritie Is an Important Test of Russia's Bank Clean-Up

(The following statement was released by the rating agency) MOSCOW/LONDON, September 01 (Fitch) The Russian authorities' approach to supporting Otkritie Bank reflects its systemically important status and does not necessarily set a precedent for the treatment of bank creditors in bailouts, Fitch Ratings says. The budgetary impact for the Russian sovereign should be limited, but the intervention is an important test of the authorities' ability to continue cleaning up the banking system and strengthen the resolution framework while maintaining confidence in the financial sector. The Central Bank of Russia (CBR) said on Tuesday that it would take a 75% stake in Otkritie and that the bank would continue to operate normally. The CBR will act as a key investor, with officials of the CBR and the Banking Sector Consolidation Fund taking over the running of the bank. No moratorium on payments under creditors' claims has been introduced, according to the CBR statement, and no bail-in option of senior creditors will be applied. The CBR's move comes after Otkritie's funding contracted sharply over the summer, following speculation about its liquidity position amid continuing efforts to clean up the Russian banking sector. The rescue is notable because of Otkritie's previous status as Russia's largest privately owned bank (it was one of only three private banks designated as systemically important) and as the first use of a mechanism whereby support comes from the Banking Sector Consolidation Fund. Protecting Otkritie Bank's senior creditors and depositors may help maintain confidence, but the implications of the intervention are unclear. If the CBR finds that the bank's capital adequacy is below the minimum threshold, its former equity owners and subordinated debt holders could take losses. And the CBR has not specified whether support will extend to Otkritie Holding, which owned 67% of the bank's standalone equity (and will therefore report a significant loss on write-down of this investment) and has at least RUB170 billion of bonds reportedly issued to third parties (some of which may be held by other banks). Nor is it clear if the bank will ultimately be sold back into private ownership. Moreover, the approach taken to Otkritie may not be replicated with smaller or less interconnected banks, which could see less favourable resolution for creditors (Peresvet was this year resolved through a combination of state support and voluntary bail-in of senior creditors, for example). This may mean that the shift by depositors towards state-owned or stronger private banks will continue. The CBR's provision of foreign-currency liquidity to the sector was critical in easing financing constraints and supporting economic adjustment in the face of geopolitical and commodity price shocks in recent years, as we noted when we affirmed Russia's 'BBB-'/Stable sovereign rating in March. Otkritie will provide the first test of the authorities' capacity to take over the direct oversight and rehabilitation of a major bank, via an equity injection and ultimately potential divestment. We estimate that Russia has directed RUB3.2 trillion (3.7% of 2016 GDP) to supporting the banking sector since 2014. We do not think the cost of the Otkritie intervention will materially affect the sovereign balance sheet, but continued progress in cleaning up the banking system and in creating a robust and predictable resolution framework will be important in reducing reliance on direct sovereign support. Contact: Alexander Danilov Senior Director, Financial Institutions +7 495 956 2408 Fitch Ratings CIS Limited Valovaya Street, 26 Moscow 115054 Erich Arispe Director, Sovereigns +44 20 3530 1753 Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Related Research Russia – June 2017 Global Economic Outlook Forecast here Russian Banks Datawatch 7M17 - PDF here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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