February 22, 2018 / 11:53 AM / 4 months ago

Russia's Otkritie Bank calls for more central bank backing

MOSCOW (Reuters) - Otkritie Bank needs more capital from the central bank despite an $8 billion rescue package last year, the Russian lender’s new chief executive Mikhail Zadornov told Reuters.

Otkritie Bank's Chief Executive Officer Mikhail Zadornov attends an interview with Reuters in Moscow, Russia February 21, 2018. Picture taken February 21, 2018. REUTERS/Maxim Shemetov

Russia’s central bank rescued three of the country’s biggest private banks, including Otkritie, in the second half of 2017 and shut dozens of smaller lenders as part of a wider clean-up over the past few years.

The Russian banking sector has suffered in recent years from the fallout of Western sanctions over Moscow’s annexation of Crimea from Ukraine in 2014 and the economic impact of a sharp fall in oil prices on the country’s foreign earnings.

Trust Bank, owned by Otkritie, and B&N Bank, which is merging with Otkritie, are expected to receive more bail-out money from the central bank’s Banking Sector Consolidation Fund by the end of the first quarter, Zadornov said in an interview.

The merger, which requires the financial rehabilitation of the bailed-out banks, would also include Trust Bank and Rosgosstrakh bank, Zadornov added on Thursday.

The former finance minister who ran the retail unit of Russia’s No.2 bank VTB for more than a decade, said there was no final decision on the amount needed to prop up Trust and B&N.

Otkritie Bank's Chief Executive Officer Mikhail Zadornov attends an interview with Reuters in Moscow, Russia February 21, 2018. Picture taken February 21, 2018. REUTERS/Maxim Shemetov

“Apart from these banks, extra funds are planned for an additional capitalization increase of the group’s pensions funds and Rosgosstrakh,” he said.

The central bank has already injected 456 billion rubles ($8 billion) into Otkritie, 42 billion rubles of which were designated for its pensions funds and 44 billion rubles to Rosgosstrakh.

To bail out Otkritie, B&N and another major lender Promsvayzbank (PSB), the central bank has planned to spend around a trillion rubles. It plans to sell the merged Otkritie and B&N banks in a stock market flotation, while turning PSB into a bank to serve the country’s defense sector.

Otkritie Bank's Chief Executive Officer Mikhail Zadornov speaks during an interview with Reuters in Moscow, Russia February 21, 2018. Picture taken February 21, 2018. REUTERS/Maxim Shemetov

BAD BANK

Zadornov said the central bank is still deciding whether to convert Rost bank, a subsidiary of B&N bank, or Trust Bank into a “bad bank” to take on bad loans from healthier banks.

A decision should be made in March, Zadornov said. The central bank did not respond to a request for comment.

Asked about Otkritie’s pension funds and Rosgosstrakh, Zadornov said 90 percent of toxic assets they held on their balance sheets had been offloaded as of early 2018.

“A substantial part of these assets — around 160 billion roubles or a quarter of all such assets — were acquired by Otkritie and Trust at their face value,” Zadornov said.

The central bank would take into account the acquisition of toxic loans when it decides on how much to spend propping up the troubled banking group, he said.

Zadornov said that Otkritie’s 2018 business plan, approved by the supervisory board, envisages a 70 percent increase in retail lending, both in cash and mortgages, and more loans to small- and medium-sized enterprises.

At the same time, Otkritie expects 30 percent growth this year in deposits from companies and households and 125 billion rubles of loan repayments. The bank plans to make new loans of up to 160 billion roubles in 2018, Zadornov added.

Writing by Andrey Ostroukh; Editing by Alexander Smith

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