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. Last Updated: 07/27/2016

Banking Cleanup Slammed As Sham




A Central Bank decision to cancel the operating licenses of four major insolvent banks drew fire Wednesday from creditors, Moscow city officials and even the government agency charged with restructuring the banking sector.


Deputy Central Bank chief Vladimir Goryunov announced Tuesday that the Central Bank was revoking the licenses of the once-mighty Uneximbank, Promstroibank, Mosbiznesbank and Mezhkombank as part of its attempt to accelerate a cleanup of the banking sector.


But even though the move was seen as a response to International Monetary Fund demands that Russia move faster on stamping out banking deadbeats, analysts and officials warned Wednesday that the Central Bank's choice of banks could further snarl an already tortuous restructuring process.


Central Bank chief Viktor Gerashchenko admitted Wednesday that taking away the licenses of these banks would complicate any efforts to restructure their debts f but he defended the move as being in line with new bankruptcy legislation.


"Self-liquidation or the loss of a license creates difficulties for internal and foreign creditors," he said at a news conference Wednesday, Interfax reported. He added that even though the Central Bank had given troubled banks time to work out restructuring of their debts with creditors, it still had not happened.


"This cannot be dragged out forever, even though this creates difficulties for creditors," he said.


Russia's high-flying banks were devastated by last August's financial collapse. A World Bank-financed probe into the remnants of Russia's banking system earlier this year picked out only three major banks that still had enough money to conduct normal operations following the crisis.


But the Central Bank had seemed reluctant to shut down bankrupt banks, revoking the licenses of just four major ones f Inkombank, Tokobank, Menatep and Unikombank f while supplying other banks teetering on the brink of bankruptcy with soft credits.


Analysts said Wednesday the move had been timed to secure the release of a $4.5 billion IMF bailout package during this visit to Moscow by IMF officials. The IMF has been pressing Russia and the Central Bank to clean up the banking sector, seen as laxly regulated.


Gerashchenko himself admitted there was a "certain link" to IMF demands.


But even though IMF officials are said to have appreciated the step, Moscow city government officials were warning Wednesday the decision to revoke the license of one of the capital's authorized banks, Mosbiznesbank, could bring the city's already shaky finances to the brink of default.


"Revoking Mosbiznesbank's license is a very untimely and unfortunate development for the Moscow city budget," said Sergei Pakhomov, the acting head of the city government's municipal debt committee.


The Moscow government had guaranteed a 1-billion ruble loan given by the Central Bank to Mosbiznesbank. Pakhomov said the revocation of the bank's license could mean that Moscow would have to pay off the loan even as it struggles to scrape together funds to pay off its foreign debt.


Analysts suggest the move could come as part of a concerted Kremlin campaign to upset Moscow Mayor Yury Luzhkov's financial apple cart and undermine his potential as a presidential candidate.


But other banking insiders said the removal of Mosbiznesbank's license would have little effect on either the capital's finances or on cleaning up the Russian banking system. They said Mosbiznesbank had long ceased operating after another city-connected bank, Bank of Moscow, said last year it would merge with it.


"Bank of Moscow has already consumed what is left of Mosbiznesbank, so taking away its license is not a particular blow for anyone," said Margot Jacobs, a banking analyst with United Financial Group.


However, Bank of Moscow had harsh words Wednesday for the Central Bank.


"Considering that the decision to revoke the license could bring serious losses to the Mosbiznesbank's private depositors and creditors, Bank of Moscow is ready ? to take all necessary legal measures to defend its interests, right up to legal action," the bank said in a press release Wednesday.


Analysts queried the Central Bank's choice targets."The Central Bank is just taking away the licenses of banks that already don't exist," said Kim Iskyan, a banking analyst at MFK Renaissance brokerage.


Uneximbank is reported to have transferred much of its remaining assets into Rosbank f a new bank owned by the financial industrial group Rosprom, which is controlled by financier Vladimir Potanin f leaving Uneximbank a non-functioning shell.


Uneximbank, however, has downplayed those reports and says it plans to merge the two banks into one entity, which will assume the restructuring obligations of Uneximbank.


But analysts say the decision to revoke Uneximbank's license could actually play into Rosbank's hands.


"Rosbank has been trying to escape Unexim's debt for some time. This could provide it with the ideal excuse," said Richard Hainsworth of Thompson Financial Bankwatch.


The Central Bank's decision to include Promstroibank caught ARKO, the government's official agency charged with restructuring the banking sector, unawares.


The agency had said just hours before the revocations announcement that it was planning to extend as much as 3.1 billion rubles in credits in return for 75 percent plus one share of the bank as part of its restructuring plans.


Several analysts said Mezhkombank should not be lumped in with the other three. Mezhkombank just last week clinched an agreement with creditors and shareholders on a restructuring deal, the first bank to do so.


But the revocations could scatter to the wind any restructuring deals contemplated by the four banks.


According to new legislation on restructuring credit organizations recently passed by the State Duma, once the Central Bank has revoked the license of a financial institution, creditors have just 45 days to petition for bankruptcy. If creditors fail to act, the Central Bank has to initiate bankruptcy proceedings itself, Jacobs said.