BOFIT Viikkokatsaus / BOFIT Weekly Review 2018/06

Three systemically important banks were placed under central bank administration last year. Additionally, a total of 63 credit institutions had their licences revoked. Most of the banks losing their licences were relatively small players, so their departure from the market had little impact. The Deposit Insurance Agency reimbursed private individuals with accounts at these banks as planned.

Otkritie Bank and B&N Bank (Binbank), two of Russia's top 10 banks in terms of total assets, failed late last summer. Both were placed under central bank administration. After a rash of rumours about impending collapse of a third large bank, Promsvyaz Bank, the CBR stepped in and took over in mid-December. Market reaction has been muted as the central bank interventions were largely anticipated. After the take-overs, seven of Russia's ten largest banks are state-owned. Collectively, they represent 60 % of the banking sector's total assets.

The CBR now plans to merge the operations of Otkritie and Binbank. The goal is to create a competitive universal bank that could eventually be privatised. Finding interested private buyers in the near future looks challenging, however. The restructuring of Promsvyaz will likely focus on creating a bank specialised in serving military-industrial complex and state procurement.

While the departure of small boutique banks is likely to improve banking sector efficiency and financial intermediation, the total collapse of three major banks has raised eyebrows. Despite strict banking supervision, even large banks have managed to conceal their risk exposures. During 2017, total assets of the banking sector rose by 6.4 %, slightly outpacing inflation. If banks that lost their licences are not included, the growth in bank balance sheets was around 8 %. At the start of 2018, 561 banks operated in Russia and the total assets of the banking sector equalled 92 % of 2017 GDP.

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