Russia’s Finance Ministry will invest 239 billion rubles ($6.6 billion) in state-owned lenders VTB Group and Russian Agricultural Bank to bolster their capital as sanctions over Ukraine curb their access to funds.
Russia’s National Wellbeing Fund will convert a 200 billion-ruble subordinated loan repaid by VTB into preferred shares, according to a government order, published on the government’s website today. The fund will invest the rest in Russian Agricultural Bank, which with other lenders, received similar loans after the 2008 global financial crisis.
The ministry is investing in the lenders “to increase these institutions’ Tier 1 capital,” the government said in the order.
President Vladimir Putin is backing the nation’s banks after the European Union and U.S. restricted their access to capital markets as part of sanctions aimed at forcing Russia to abandon support for separatists in eastern Ukraine. VTB, whose first-half profit plummeted, has struggled to raise funding internationally.
“The only benefit of this exercise is to raise the bank’s Tier 1 capital as preference shares can be treated in the same way as perpetual debt,” Natalia Berezina, banking analyst at UralSib Financial Corp. in Moscow, said by phone.
VTB’s Tier 1 capital, a measure of financial strength, may rise to more than 11 percent from 9.4 percent at the end of June, according to Berezina. Russia’s central bank requires a Tier 1 ratio of 10 percent.
Officials for VTB in Moscow declined to comment by e-mail. Russian Agricultural Bank’s press service didn’t immediately respond to e-mail seeking comment.
VTB’s net income tumbled by 85 percent in the first half to 4.3 billion rubles from 27.9 billion rubles for the same period a year ago, the bank said Aug. 21, as an economic slowdown in Russia and turmoil in Ukraine hurt its business.
The Russian government holds 60.9 percent of VTB, the bank’s website shows, and 100 percent of Russian Agricultural Bank.
“It doesn’t really matter which government pocket ends up holding” the VTB securities, Berezina said.
VTB shares rose 2.5 percent to 4.024 kopeks by 6:15 p.m. in Moscow, boosting its market value to about 521.5 billion rubles. The lender has lost 19 percent of its value this year.
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