Some Russian banks face a hard time - August 20, 2017

Some Russian banks face a hard time

Russian authorities extended the review of bank licences until 2019. The main reasons behind licence revokes are committing frauds or just having poor asset quality and high risk. This costs billions to Russia and already reduced the number of banks significantly. Even big banks are in danger sometimes.

The review of Russian banks started in 2013, and according to Reuters, the number of banks already fell “to around 570 from 900. At that pace, Russia would end up with around 400 banks in 2019.” This means until 2019 more than half of Russian banks’ licences will be revoked.

What are the reasons?

Officially there are several reasons behind the actions. As Reuters quoted, a deputy governor at Russia's central bank, shady loans, or straightforward stealing depositors’ money are the main explanations for losing licences.

Sometimes banks are not involved in activities like these, but they still get their authorizations withdrawn. As Reuters wrote: several Tatarstan banks’ licence was revoked “including top-50 bank Tatfondbank, on Friday. It did not accuse any of those three of any crimes, but said it took the action because of their poor asset quality and high risk.”

Bankruptcy may be a real danger

Sometimes there are high risks behind a ban, but not all problematic banks lose their licences. The partially church-owned Peresvet Bank was saved from bankruptcy by Russian Regional Development Bank. RRDB is owned by oil company, Rosneft.

Peresvet had serious problems ever since 2016, writes Parvoslavie.ru. Last year, Fitch Ratings Inc. published that the bank had more than 12 billion rubles (~$200 million) in high-risk loans and they predicted that this will lead to problems. It happened, but the Bank of Russia – and 70 other creditors – helped the bank stay afloat. In June, however, the Rosneft owned development bank had to intervene and buy almost 100% of Peresvet.

It costs a lot to Russia

These weak banks are hurting Russia a lot. The saving of Peresvet costed 66.7 billion rubles (~$1 billion) to the Bank of Russia alone. And as we can see from the example of Tatfondbank, sometimes even the big actors could be in danger on the market.

According to the Reuters report, “The central bank had to plug a hole of around 600 billion roubles ($10 billion) in the balance sheets of the roughly 100 banks whose licenses it withdrew last year.”

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