VTB moves $3.7 billion of Bank of Moscow toxic assets to 'bad bank'

The logo of VTB Group is seen through a window of Imperia Tower on the facade of the Federatsiya (Federation) Tower at the Moscow International Business Center also known as "Moskva-City", in Moscow, Russia, in this August 5, 2015 file photo. REUTERS/Maxim Zmeyev/Files

MOSCOW (Reuters) - VTB VTBR.MM, Russia's second biggest lender, does not expect a return on 243 billion rubles ($3.7 billion) of toxic assets held by its Bank of Moscow and has moved them to a specially created "bad bank", a VTB executive said.

Bank of Moscow, once Russia’s fifth-largest by assets, was taken over by VTB in 2011 via a number of transactions involving the City of Moscow and after former Moscow mayor Yuri Luzhkov was fired in September 2010 by then-president Dmitry Medvedev.

Dmitry Pyanov, senior vice president at VTB, told reporters that bad loans left by Bank of Moscow’s former head and co-owner Andrei Borodin were estimated at 366 billion rubles in 2011.

“Now their value is 243 billion rubles. In 2012-2014 significant debt returns happened but at the moment the potential to return the remaining part of the debt is close to zero,” Pyanov said.

Splitting banks into “good” and “bad” parts has happened worldwide following the financial crisis. Lenders put so-called toxic assets into separate entities, moving them off the balance sheet so they are no longer a drag on the rest of the bank.

VTB will hold the “good” part of Bank of Moscow’s assets, or about 70 percent of their total.

Borodin, who left Russia in 2011, has dismissed allegations by VTB and the Russian authorities that he improperly lent billions of dollars to firms he controlled.

After he left the country, many loans with Bank of Moscow went bad, forcing the state to launch a record rescue operation costing about 400 billion rubles.

Reporting by Oksana Kobzeva; writing by Katya Golubkova; editing by Alexander Winning and David Clarke