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. Last Updated: 07/27/2016

State Spends $1.12Bln Rescuing VEFK Bank

The Deposit Insurance Agency spent almost 40 billion rubles ($1.12 billion) on bailing out VEFK Bank, the St. Petersburg-based lender that was put under temporary state administration last year, the deputy head of the agency said Wednesday.

"This is one of the largest sums of money ever spent in Russia on rescuing a bank," Dmitry Lyubinin said.

The Central Bank said last Thursday that VEFK would sell 10 billion rubles worth of stock, half of which will be bought by the Deposit Insurance Agency, in addition to receiving 10 billion rubles from the Central Bank through a subordinated loan.

Sixty-seven percent of VEFK's loans were made on the direct instruction of the bank's former chief shareholder without the necessary safeguards, Lyubinin said. The inability of borrowers to service this debt was the main reason for the lender's demise, he added. VEFK was Russia's 46th-biggest bank by assets in 2007.

Nomos Bank and Otkritie Financial have each agreed to buy 2.5 billion rubles of VEFK shares, a purchase that will also be financed by the Central Bank's 2.5 billion rubles in subordinated loans to each lender. Nomos vice president Valery Zinchenko said the investors see this as a "temporary" venture and don't intend to merge or acquire VEFK.

Nomos and Oktritie will both take part in the bank's management after the new board and administration are elected in April.

VTB, Russia's second-biggest bank, will close a deal in March to acquire 19.9 percent of Otkritie for $150 million, Natalya Borshchevskaya, first deputy chief executive at Oktritie, said Wednesday.

Prime Minister Vladimir Putin said on Feb. 5 that the government would spend 400 billion rubles ($11.2 billion) to aid Russia's banking industry in addition to more than $200 billion in emergency funds channeled to banks and companies last year.