Globex Puts Freeze on Term Deposits

MTPeople smoking outside a Moscow branch of the troubled Bank Globex on Wednesday. The bank's advertisement is offering the "Sweet Life" deposit plan.
In a sign that the liquidity crisis is becoming more acute for Russian lenders, Bank Globex, one of the industry's medium-sized players, has blocked early withdrawals from fixed-term deposit accounts for five days.

The announcement raised immediate concerns about whether the bank's move was even legal.

Emil Aliyev, vice president of Globex, said the measure was introduced after a spike in demand for early withdrawals of term deposits, "with many depositors explaining that they urgently wanted to transfer their money to VTB and Sberbank," Interfax reported. Both VTB and Sberbank are state controlled.

Garegin Tosunyan, president of the Association of Russian Banks, said the Globex decision, while severe, was "the correct action to take."

"When panic strikes, the banks need to take measures," Tosunyan said. "You need to pour cold water over people's head and say, 'Look, enough; let's stop panicking now.'"

Aliyev said deposits in Globex had fallen by 13 percent in September, from 27.1 million rubles to 23.5 million rubles ($1 million to $899,000), with most of the outflow coming from term deposits, Interfax reported.

Although the freeze does not affect checking accounts, concerns were raised after Kommersant reported that a client had been unsuccessful in trying to withdraw checking account funds at four different Globex ATMs on Tuesday.

Andrei Balyberdin, a checking account client, had no problem at a Globex ATM on Leningradsky Prospect on Wednesday.

"It's not true," Balyberdin said, holding a thick stack of freshly withdrawn $100 bills.

When asked whether his heady withdrawal was connected to the rumors, he laughed and said, "No, I'm going on a trip to America to visit a friend, and I needed to take out a large amount."

While Balyberdin's confidence in the bank hadn't been shaken, some analysts were left questioning the measure's legality.

"The bank is breaking the law," said Maxim Osadchy, senior analyst at Antanta Capital. "This violation is very dangerous, not only for its reputation — and any bank's chief asset is its reputation — but also because the bank could be excluded from the Deposit Insurance Agency. The Central Bank could even revoke its license."

But Osadchy said he didn't think that it was likely the Central Bank would come down that hard, a view shared by others.

"The opposite scenario is more likely to play out. The Central Bank is more likely to help the bank deal with this situation," said Mark Rubenstein, an analyst at IFC Metropol. "Yes, they are breaking the rule, but we have to look at the situation differently. They can't penalize them now. It's one of those cases where a joint cooperative solution is better than punishment."

The Central Bank did not reply to a written request for comment.

Rubenstein said the liquidity concerns that spurred Globex to suspend early withdrawals from term deposit accounts were "85 percent psychologically motivated."

"We will pull out of this in the next week or two," he said, citing a fall in interbank lending rates as a positive sign.

The interbank overnight lending rate was 8.65 percent on Tuesday, down from 11.08 percent on Sept. 17.

They may be charging each other less, but banks are still being treated harshly by the markets.

The largest banks took big hits Wednesday, with Sberbank down 14 percent and VTB down 10 percent, both in trading on the MICEX.

The Central Bank slashed reserve requirements on all types of accounts to .5 percent late Tuesday, a drop of as much as 4 percent in some cases.

Rubenstein was also hopeful that the package of laws passed Monday in the Federation Council, allowing the Central Bank to give Sberbank and the Vneshekonombank, also known as the Development Bank, 950 billion rubles ($36 billion) in subordinated loans, would help "push money through the pipe" to second-tier banks like Globex.

To qualify for such subordinated loans, banks have to meet credit-rating requirements and must have already received subordinated loans from outside sources — criteria Globex might not meet.

"The bank has to come up with two rubles for every ruble in a subordinated loan," Osadchy said. "[Globex] can apply, but I don't understand where the bank will find the other two rubles."

Globex might be wary about applying for such a loan.

"It is a little like nationalization," said Natalya Orlova, an analyst with Alfa Bank. "If you have the state loan, then the state may be able to interfere with the decisions of the bank."

Orlova thinks that if Globex has difficulties meeting its obligations, it may end up going a different route.

"As a second-tier bank, I think this will be dealt with on a case-by-case basis by the Central Bank," she said. "They will be trying to find a buyer, somebody to buy the troubled bank."