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. Last Updated: 07/27/2016

State Banker To Supervise Revamp of Bank Sector




The government has appointed Central Bank deputy chairman Alexander Turbanov as head of the Agency for Restructuring Credit Organizations, set up recently to revamp Russia's ailing banking sector.


ARCO's board of directors will be headed by Central Bank chairman Viktor Gerashchenko and is likely to include high-placed Central Bank executives, some currently working in OPERU-2, the department that overlooks private banks, a source in the Central Bank told Prime-Tass news agency.


Deputy Finance Minister Oleg Vyugin and State Tax Service chief Georgy Boos are also likely to be on the board.


Turbanov will probably have to leave the Central Bank to take up his new post, Prime-Tass said.


The appointments suggest that the Central Bank would largely supervise the restructuring of the banking system, analysts said. "Turbanov is a long-time Central Bank employee in charge of supervising the banking sector, he probably has the best command of what is going on in the banking system," said Konstantin Svyatny, head of fixed income at Rossiisky Kredit bank.


The Central Bank will hold 51 percent of ARCO's 10 billion ruble ($483 million at Friday's rate) charter capital, half of which is made up of federal loan bonds, or OFZs. On Aug. 17, when the government froze its treasury bills, it did not default on OFZs, which mature after 1999.


The rest of the charter capital is held by the State Property Fund on behalf of the state. It remains unclear what this second part of the capital will consist of.


The government has also reached a tentative agreement with the World Bank on a $200 million loan for ARCO.


Margot Jacobs, an analyst with United Financial Group, said that although the loan would be "higher quality capital" than bonds or freshly printed rubles, it would be far from enough to finance ARCO and it would take a while for the money to be disbursed. The World Bank still has to officially sign off on the use of the money, she added.


As part of the state's bank restructuring program, ARCO will disburse up to 30 billion rubles to banks either in government bonds or loans.


Central Bank deputy chief Andrei Kozlov said last month that 12 billion to 13 billion rubles may go to regional banks and 5 billion to 10 billion rubles to 18 socially important banks.


But Svyatny said 10 billion rubles will not be enough to finance the top 18 banks and the state will have to give up on some of them.


"Some banks will remain socially important and some will be excluded from the list," Svyatny said. "There is competition for slots on the list."


Under one of the two major restructuring schemes, ARCO would hand out OFZs to banks, which would use them as collateral against Central Bank loans they can use to boost liquidity.


If the loans are short-term and if recipient banks are able to repay them, the scheme would not be inflationary, since the cash would not be injected into the economy, Svyatny said.


Under another scheme, the Central Bank would give long-term stabilization loans to banks, fueling inflation.