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Banks

Russia bank bailout bill hits $5.5 bln; queue grows

MOSCOW, Oct 17 (Reuters) - Russia has already spent $5.5 billion bailing out banks as it seeks to prevent panic spreading to the streets and triggering a run on banks, but the queue of needy institutions is growing fast.

The government will have to plan subsequent moves carefully and prioritise how it now doles out its not-unlimited resources.

Wary depositors have lost their savings several times in post-Soviet history, and a false move by the state could trigger panic that could cripple Russia’s still nascent financial sector for years.

“While we expect further failures among small banks, we believe the panic could quickly intensify if the authorities allow a deposit-rich bank to go under,” analysts from Unicredit Aton said in a research note.

On Friday, state bank VEB said it would buy mid-sized bank Globex, which had acute liquidity problems, for a symbolic amount. Globex would become the fourth bank among Russia’s top 50 to be effectively nationalised by the state in the past weeks.

“More then 100 banks are looking for buyers. There will be a very big reshuffle,” a senior Russian banker said this week.

This month the government has already bailed out three mid-sized banks, Svyaz, KIT Finance and Sobinbank.

“Just as we did with Svyaz Bank, we will take the whole bank and start helping it, partly with money that the Central Bank will deposit with us,” VEB’s chairman Vladimir Dmitriyev told Russian agencies.

While the purchase price of 5,000 roubles may be seen symbolic, Dmitriyev said the state will deposit $2 billion with VEB to help rescue Globex.

That brings the total rescue package for the banking sector to over $5.5 billion as the the central bank has already provided over $2 billion to VEB to help Svyaz Bank.

The rescue of Sobinbank by a banking unit of gas monopoly Gazprom GAZP.MM, Gazenergoprombank, cost another $500 million. Gazprom's other bank, Gazprombank, opened a $1.14 billion credit line to KIT Finance.

“There are several other banks waiting for their turn”, a high-level government source said late on Thursday.

Russia has over 1,300 banks and authorities have said a crisis could help reduce the number to a more manageable level as many of the institutions, created in the 1990s as pocket banks of large corporations, have outlived themselves.

“The news (about Globex) once again highlights the authorities’ commitment to support banking system stability, with a clear focus on top 50 banks,” said David Nangle, analyst at Renaissance Capital.

The banking sector is due to get $36 billion as part of the state's total $210 billion rescue package for the financial sector with the bulk of it due to flow via VEB, and state-run listed behemoths Sberbank SBER03.MM and VTB VTBR.MM

The picture among the top 50 is highly varied, as some can comfortably rely on shareholders with oil, steel or chemical assets, although some owners have been withdraw money to pay on other obligations.

Western banks, which have expanded aggressively in Russia in the past years, betting on high revenues amid record economic growth levels, have also pledged support for their branches, although many face troubles at home.

Those which specialised in retail lending, mortgage or heavily credited the real estate sector through cheap Western borrowings are in the risk zone.

Bankers note that Russians unfailingly continue to pay mortgage and retail loans, and continue to deposit money with state banks.

But nerves are fraying, even though the central bank has kept the rouble rate stable by injecting billions of dollars to support the currency on the forex market.

“People are lost. I see some clients ending their term deposits early and putting money in safe deposit boxes. The next day they convert roubles into dollars. On the third day, they convert them into euros and open a new deposit account. It is not yet panic but it is close,” a top banker said. (Reporting by Dmitry Zhdannikov and Dmitry Sergeyev; editing by Hans Peters)

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