Russia Revokes Three Banks Licenses in Industry Cleanup

Russia’s central bank canceled the licenses of Investbank, Project Financing Bank and Smolensky Bank as it accelerated a cleanup of the industry and sought to arrest capital outflows from the country.

Smolensky is accused of “false statements,” while Project Finance Bank was involved in “questionable conduct” after loss of liquidity last month, the Moscow-based regulator said on its website today. Investbank, the largest of the three and ranked in Russia’s top 100 banks by assets, had poor asset quality and insufficient cash flow, it said.

The central bank is shuttering banks as Russia works to tackle illicit activities such as drug-related operations and money laundering that brought net capital outflows forecast at $55 billion this year. Today’s decision comes three weeks after it annulled the license of OAO Master-Bank, whose board members included President Vladimir Putin’s cousin, saying the firm repeatedly breached anti-money laundering laws.

“There is some general cleanup underway by Nabiullina who has a mandate to improve banking supervision,” Olga Naydenova, analyst at Moscow-based brokerage BCS Financial Group, said by telephone. “If they have bigger targets, I think they will try to save them rather than winding them down.”

The regulator is probing “many” banks and won’t ignore violations, central bank Chairman Elvira Nabiullina said in October. Almost 30 companies lost their licenses this year, compared to 22 in 2012.

Upset Clients

Angry customers of Investbank broke down the door of its main office in Kaliningrad, a Russian enclave on the Baltic Sea, Interfax reported today, citing an unidentified police official. Lada Astikas, a spokesman for the Kaliningrad governor, declined to comment by telephone.

“It may seem that the central bank almost likes revoking licenses,” central bank First Deputy Chairman Alexei Simanovsky said in an interview on Vesti television today. “I have to say that a review of any license is a shock for us.”

Insurance payments to deposit holders at the three banks, due to begin Dec. 27, will total 51 billion rubles ($1.6 billion), the Deposit Insurance Agency said in a statement on its website.

While central bank action against money laundering and other criminal activities has led to “collateral damage” such as depositor panic at some small and mid-sized banks, it is positive for the industry, Moody’s Investors Service analyst Svetlana Pavlova said in a report last week.

Activities also including tax avoidance, theft of budget funds, bribes, and drug-related operations accounted for $38 billion of Russia’s net private capital outflow in 2012, former central bank Chairman Sergey Ignatiev said in June. That was about 70 percent of total outflows.

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