BOFIT Viikkokatsaus / BOFIT Weekly 2017/38

On Thursday (Sept. 21), the Central Bank of Russia announced it would become the largest shareholder in troubled B&N Bank (Binbank), which is privately owned and Russia's twelfth-largest bank by asset value. The bank's operations will continue normally, no moratorium on payments will be imposed and bail-in terms will not be applied. The measures also cover Rost Bank, which has been under resolution by Binbank. CBR deputy governor Vasily Pozdyshev estimated the recapitalization need of Binbank at 250–350 billion rubles (4-5 billion euros).

Following in the wake of Otkritie and Yugra banks, Binbank is the third large bank to fail in recent months. The CBR last week confirmed its resolution plan for Otkritie Bank which includes e.g. recapitalisation from the CBR. An earlier estimate by Pozdyshev put Otkritie's recapitalisation need at 250–400 billion rubles. The CBR filed Yugra for bankruptcy in August.

While market reaction to bank problems have been generally limited during past months, rumours concerning certain individual banks has put pressure on these banks. These banks suffered from deposit outflow in August and they needed liquidity financing from the CBR. Most of the liquidity financing went to Otkritie Bank, which as of end-August had nearly 1.1 trillion rubles (16 billion euros) of CBR credits on its balance sheet. However, the total stock of deposits held by the banking sector in August remained practically unchanged and interest rates on the interbank market were still relatively low. The CBR has e.g. implemented a supplementary liquidity financing facility and extended its list of systemically important banks. Recent problems are largely seen to reflect the activities of the individual banks, like excessive related-party lending and aggressive expansion through M&A, e.g. buying up banks in resolution.

In recent years, tighter banking supervision has forced many banks in Russia to close or submit to restructuring. Most failing banks tend to be small and are often involved in shady dealings and them CBR has tried to weed out systematically. A number of larger banks has, however, also fallen into trouble. The Deposit Insurance Agency, which had dealt with problem banks until this summer, has doled out about 2.3 trillion rubles (33 billion euros) on refunds to depositors for their losses or recapitalisation of failed banks since the beginning of 2014. A new Bank of Finland blog discusses Russian banking sector in more detail.