BOFIT Viikkokatsaus / BOFIT Weekly Review 2017/28

In terms of total assets, Yugra is Russia’s 30th largest bank. It has been placed under temporary administration by Russia’s Deposit Insurance Agency (DIA), with its payments frozen for three months. During the period of temporary administration, the DIA will decide whether to restructure the bank or wind it down. Yugra Bank grew quickly in recent years through aggressive pursuit of deposits from the general public and channelling them to lending to companies. The bank’s main owner is a company registered in Switzerland that is itself owned by Russian businessmen.

In May, the Duma approved a bill that shifts the burden of financial restoration of troubled banks and restructurings from the DIA to the CBR. A separate fund created with CBR assets was established to finance restructuring efforts. The new system will be introduced not until end of this month, which could make Yugra Bank its first client.

The DIA financial restoration programmes covered 25 banks in the early part of this year. In addition, the DIA is responsible for winding down banks that have lost their licences. The number of banks undergoing bankruptcy proceedings increased in both 2015 and 2016 by almost 30 %, reaching 295 by the end of last year. The DIA has found it increasingly difficult to deal with these processes in a smooth manner, and the time spent on winding down banks and the costs of the processes have risen substantially.

The prime mission of the DIA is to guarantee the deposits of private individuals up to 1.4 million rubles when a bank loses its license. The number of deposit insurance claims has increased almost as fast as the pace of bank licence cancellations. Banks that lost their licences last year included several mid-sized deposit banks, and the DIA received 11 insurance claims costing a total of more than 10 billion rubles each. For all of 2016, a total of 564 billion rubles (7.6 billion euros) was paid out of the deposit insurance fund. The fund’s assets were insufficient to handle all the payments, so the DIA was granted cheap credit from the central bank to cover the difference.

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