Russia Depositor Compensation Heads for Record in Bank Purge

  • Expert RA says bank cull won’t stop until economy grows 3%
  • Regulator has shut down 30% of Russian banks under Nabiullina

Russian payouts to depositors of failed lenders may reach a record this year as an unprecedented bank purge isn’t letting up, according to the country’s ratings company Expert RA.

Nineteen banks, including seven of Russia’s 50 biggest by assets, are already in the “red zone,” which puts them at risk of losing a license in the coming six months, said Stanislav Volkov, Expert RA’s managing director for bank ratings. As more lenders are forced to shut down, he estimates that payments from the Deposit Insurance Agency to savers could exceed 500 billion rubles ($7.7 billion) this year from 443 billion rubles in 2015.

“Halting the bank cull isn’t in the cards until Russia can manage sustained annual growth of about 3 percent,” Volkov said by phone from Moscow. “The central bank is trying to push banks so that their reporting reflects reality, but they don’t want to push too hard given the system’s fragility.”

Pulling up growth is a tall order for an economy that’s been in contraction since the start of 2015. The government’s forecasts, which are available through 2019, envisage gross domestic product returning to expansion next year and gaining less than 3 percent annually in the following two years.

Cleaning Up

Asset quality is deteriorating as Russia’s longest recession in two decades throttles demand for loans and banks run short on capital to cover losses. More than 30 percent of Russian lenders have been labeled as mismanaged or under-capitalized and shut down since Bank of Russia Governor Elvira Nabiullina took over in 2013. The total number of banks was at 630 on July 1, central bank data show.

While finance executives and public officials have said the worst of the crisis is over, another 10 banks lost their licenses in July, bringing the total this year to 60. Banks posted 360 billion rubles in profit in the first half, up from 51 billion rubles a year earlier, the central bank said in July.

The country’s regulator may continue to pull bank licenses at the same pace next year, according to Expert RA. For the seven biggest banks under threat, authorities may mount a rescue instead of stripping their licenses, Volkov said.

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