BOFIT Viikkokatsaus / BOFIT Weekly 2018/14

Central Bank of Russia deputy governor Vasily Pozdyshev said Monday (Apr. 2) that problem loans and certain other assets of the banks that are under control of the central bank will be placed in a new "bad" bank. Three major privately held Russian banks went under the control of the CBR last year: Otkrytie, Binbank (B&N Bank) and Promsvyazbank. They all had earlier taken on other problematic banks for restructuring. The bad bank will be built on the basis of Trust bank that was under restructuring by Otkrytie. It will be used to marshal bad loans and certain other assets also from Binbank and Promsvyazbank worth a total of 1.1 trillion rubles (16 billion euros), or just over 1 % of the total assets of the Russian banking sector. Pozdyshev estimates that 40−60 % of the bad loans could be recovered, but many observers of the Russian banking sector see this statement as overly optimistic. The CBR will not capitalise the bad bank directly, but rather fund it through low-interest loans.

Pozdyshev reports that the CBR has currently spent a total of nearly 630 billion rubles (9 billion euros) for capitalization of Otkrytie Bank, Binbank and Promsvyazbank. He estimates that Promsvyazbank still needs an additional injection of 130 billion rubles (nearly 2 billion euros). The current plan is to sell Otkrytie and Binbank to private investors once their distressed loans are transferred to the bad bank. Promsvyazbank, in turn, would become a state-owned bank focused on providing finance to defence contractors.