Record Insurance Payout Looms as Bank of Russia Culls Licenses

The Bank of Russia’s crackdown on lenders in the Rossiyskiy Kredit group may trigger a record payout of 57 billion rubles ($972 million) to depositors.

OAO Rossiyskiy Kredit Bank, the country’s 45th-largest by assets, followed highly risky lending practices and its reporting was unreliable, the central bank said on its website Friday, explaining the decision to pull its license. The regulator also closed two affiliates and put a third under external administration.

Russia’s central bank has been shuttering lenders it deems mismanaged or under-capitalized and fought to clamp down on dubious capital transactions as the economy tipped into contraction. The number of operating banks dropped to 741 at the end of June from 894 two years earlier, as Governor Elvira Nabiullina took the reins, according to central bank data.

The combined payout may be the biggest yet by the Deposit Insurance Agency, according to Maxim Osadchy, an analyst at Bank BKF Ltd. in Moscow. In May, Andrey Melnikov, the deputy head of the agency, said 40 billion rubles would be paid to savers with Transportny Bank, according to Interfax.

The banks in the Rossiyskiy Kredit group may have to write down 76 billion rubles of 186 billion rubles in total assets, Interfax news service reported, citing Bank of Russia Deputy Governor Mikhail Sukhov. They may have negative capital of at least 50 billion rubles, the news service said.

The deposit insurer said it has sufficient funds and will start paying account-holders no later than Aug. 7, according to an e-mailed statement. Sukhov said the agency should have a minimum cushion of 40 billion rubles, Interfax said.

In November 2014, Moody’s Investors Service said Rossiyskiy Kredit’s fast loan growth wasn’t underpinned by a corresponding increase in capital. More than half of its borrowers were in finance or real estate, industries particularly vulnerable to a detriorating economy, and 43 percent of its total loans were overdue or impaired by the end of the first half of 2014, according to the rating company’s report. Moody’s withdrew Rossiyskiy Kredit’s rating in later that month.

Moody’s forecast that bad loans at Russian banks would jump to as much as 14 percent in the next 12 months from 9.4 percent at the end of last year, according to a July report.

The pace of new lending slowed as the central bank more than doubled its key rate last year to 17 percent, before reducing it four times this year to 11.5 percent. The economy is forecast to shrink 2.8 percent this year.

Rossiyskiy Kredit officials didn’t respond to requests for comment. Its board is headed by Anatoly Motylev, whose Globex Bank was rescued and taken over by Russia’s state development bank in 2009. Motylev is also on the board of AMB Bank. His reception declined to put calls through to him.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE