(Corrects Sept. 1 story to clarify the central bank aims to return the funds to Otkritie bank, not its shareholders.)
By Elena Fabrichnaya and Oksana Kobzeva
MOSCOW (Reuters) - Russia’s Otkritie bank has a hole in its balance sheet that could be as large as $6.9 billion, a central bank deputy governor told Reuters, a shortfall that would make the bailout now underway the biggest in Russia’s history.
Earlier this week, the central bank announced it was taking over control of Otkritie, Russia’s largest private bank, saying the bank’s ambitious expansion drive and a run on deposits had left it with insufficient capital.
“According to a preliminary assessment, taking into account that not all the group’s assets have been studied ... the volume of extra capital the group would need is between 250 billion rubles ($4.3 billion) and 400 billion rubles ($6.9 billion),” Central bank deputy governor Vasily Pozdyshev said in an interview.
Until now, the biggest banking bailout in Russia was a 395 billion rouble rescue in 2011 of Bank of Moscow, Russia’s fifth-biggest lender by assets at the time. It was taken over by state-controlled VTB, Russia’s No.2 bank.
Pozdyshev said that since the rescue was launched on Tuesday, deposits that were earlier withdrawn were starting to return to Otkritie, and that he saw no risk of contagion affecting other Russian banks.
“There were, and are, absolutely no fears about a systemic or non-systemic banking crisis,” he said.
Speaking to Reuters in his office at the central bank in Moscow late on Thursday, Pozdyshev revealed new details about the planned bailout.
He said it would cover not only the bank itself but other assets held by Otkritie group, including acquisitions of Rosgosstrakh and Trust bank, which he said would suck up much of the central bank’s capital injection.
The central bank will find the cash for Otkritie’s rescue by printing money, but Pozdyshev said the central bank will not put in the money in a lump sum, instead spreading it over time. The support is coming in the form of liquidity - which the bank will have to repay - and a capital injection which will see shareholders diluted or losing their holdings completely.
Excess liquidity in the market which may result from the Otkritie bailout will be absorbed using the central bank’s usual tools - deposit auctions and OBR bonds, Pozdyshev said in the interview, which was cleared for release on Friday.
“Otkritie’s financial rehabilitation and the tools the central bank is using will not anyhow impact on reaching the inflation target or on inflation itself,” Pozdyshev said.
Pozdyshev offered little cheer for holders of Otkritie’s subordinated bonds, sticking to the central bank line that some could be written off, and others converted into Otkritie equity. The price of the subordinated bonds hit an all-time low on Friday.
Pozdyshev said he returned as planned from vacation on Monday and threw himself into dealing with the Otkritie rescue. He said he had been working flat out since then, with no sleep for two nights.
Explaining how Otkritie had got itself into difficulty, he described a confluence of events -- including burdensome acquisitions, market rumors about the state of the bank and a chain reaction of depositor withdrawals -- that by the end of August had become too much for Otkritie to handle on its own.
Some financial analysts have said the Otkritie bailout raises questions about the quality of central bank supervision.
Asked about this, Pozdyshev said the bank had been keeping a close eye on Otkritie. He said that between 2015 and the start of 2017, the central bank asked Otkritie to boost provisions for bad loans by an additional 80 billion rubles and to inject another 20 billion rubles into the capital. The bank complied.
Last September the central bank started preparing a wide-ranging check into Otkritie, but that did not get underway until May this year. He said the delay was because the whole Otkritie group with its multiple units -- not just the bank -- needed to be examined.
While the check was being prepared, Otkritie bank had started the acquisition of the insurer, Rosgosstrakh, forcing it to pour in liquidity.
At the same time, Otkritie was experiencing an outflow in deposits. Pozdyshev said the central bank had been in touch with the bank’s managers, who said they had a plan in place to deal with the outflow. But, he said, the bank underestimated the scale of the outflow.
In June, July and August, 693 billion rubles in client funds was taken out of Otkritie bank. Based on a Fitch estimate, that would amount to about a third of Otkritie’s liabilities.
Some Russian banking analysts have said a low rating issued in early July to Otkritie by ACRA, a Russian ratings agency, triggered the outflow.
But Pozdyshev said that only a third of the outflows, or 211 billion rubles, was linked to the rating.
“I wouldn’t say that the rating assignment became the main reason for the liquidity outflow,” Pozdyshev said.
He said a role was played also by rumors circulating about the problems at Rosgosstrakh, and the knock-on effect on Otkritie. An “information attack” was underway, though he did not say who mounted it.
After that, bank clients started talking to each other, he said, and if one withdrew their deposit, others would follow.
Pozdyshev said a temporary administration team set up by the central bank is now poring through the books of Otkritie group to gauge the true state of its finances, and understand how it was being managed when it got into trouble.
Under central bank rules, a bank’s lending to related parties cannot exceed 25 percent, a measure designed to stop lenders becoming overexposed, including to its own shareholders.
Pozdyshev said Otkritie bank, on paper, was within the rule, at 24 percent, but that in reality its exposure to the wider Otkritie group may be higher.
Vadim Belyayev, chairman at the group, holds a 28.6 percent in the holding which controls Otkritie bank. Shareholders in the group also include VTB and executives at oil company Lukoil.
Pozdyshev said the holding had around 100 billion rubles of investments in the bank, in addition to loans it took from the bank. “We will need to detach the holding and the bank,” he said.
Asked if there were any signs of assets being stripped from the Otkritie group, Pozdyshev said the temporary administrators had frozen some transactions carried out in the days before the bailout, but that the sums were not significant.
He said the existing shareholders were working actively and constructively with the central bank on the rescue, and that the central bank would return to the bank as much of its funds as possible.
Under the rescue plan, the central bank will take a minimum of a 75 percent stake in the bank, which may increase to 100 percent if the bank’s capital turns negative.
The Russian state had no interest in holding onto Otkritie in the long term, Pozdyshev said. He said he envisaged the central bank selling the bank, but that it would be two or three years before a sale was on the cards.
Additional reporting by Andrey Ostroukh; Writing by Katya Golubkova; Editing by Christian Lowe and David Evans