MOSCOW (Reuters) - A central bank proposal that banks make higher provisions to cover loans for mergers and acquisitions could hurt the banking sector and the economy, German Gref, chief executive of Russia’s largest bank Sberbank, told Reuters.
After bailing out three large private banks last year, the central bank has proposed the industry sets aside higher provisions for loans underpinning M&A deals than if the funds are for business development.
At the time of the bailouts, the central bank said acquisitions and deals linked to the failed banks’ owners were one of the reasons for the problems experienced by Otkritie, B&N and Promsvyazbank. The combined bailouts have cost the central bank over 1 trillion roubles ($16.3 billion).
The central bank says changing the rules on provisions would help clean up of the Russian banking system.
Sberbank’s Gref, however, said the proposal would only make the situation worse.
“We showed (the central bank) our calculations and what this could lead to and for us it was a serious sum (for provisions),” Gref said, in remarks cleared for publication on Thursday.
“Given our size, we would somehow survive it, but the rest of the banking sector would face an existential threat.”
The Russian central bank is the majority owner of Sberbank, Russia’s largest bank with over 23 trillion roubles ($373 billion) in assets, holding almost half the country’s retail deposits.
“M&A deals for the banks are a way to sell off bad debt. For the market, it’s seen as the economy getting better,” Gref said.
“These deals are often done using loans, but if you can’t raise them (the loan capital) ... what do we get? I am afraid it will lead to companies going bankrupt and jobs and taxes being lost.”
Gref, at the helm of Sberbank since 2007, said that discussions with the central bank about the new proposals were ongoing. The central bank has yet to announce any firm plans.
“The central bank is ready to soften the initial proposals for provisions for loans issued for M&A deals,” Gref said, without going into detail.
One of the bailed out banks, Promsvyazbank, will be turned into a bank that will take defense sector loans from other Russian banks, such as Sberbank and VTB, to protect them from possible new Western sanctions.
Gref said discussions about the transfer were underway and Sberbank might also transfer some subordinated loans it had from the central bank to Promsvyazbank as well.
Asked whether he believed that a reduction in the central bank’s stake in Sberbank below 50 percent would allow the bank to be excluded from Western sanctions, Gref said that in his view it would not help.
The sanctions, in effect from 2014, limit the bank’s ability to borrow abroad.
“We were sanctioned not because of our actions or shareholder structure, but because that was how the geopolitical situation was.”
The United States, the European Union and some other Western nations first imposed sanctions on some Russian officials, businessmen and companies in 2014 after Moscow annexed Ukraine’s Crimean Peninsula.
Some of the sanctions have since been extended to cover more names. In the latest move last month, the United States imposed sanctions on Russian businessman Oleg Deripaska and his companies, including Rusal, among other oligarchs.
Sberbank is one of the largest lenders to Deripaska’s empire, along with state bank VTB (VTBR.MM). Asked about Rusal’s debt to Sberbank, Gref said there were only two options.
“Either the loan is repaid to us or we will work with the collateral (a more than 28 percent stake in Norilsk Nickel),” Gref said, without disclosing any further details.
Earlier this week, Sberbank said it had agreed to sell its Turkish unit, Denizbank, to Dubai’s biggest lender Emirates NBD ENBD.DU.
Denizbank is the fifth-largest private bank in Turkey and the biggest asset held by Sberbank outside Russia. The sale is part of a strategy by Russia’s top lender to divest overseas businesses to focus on its domestic market.
Gref said that the final sale price was expected to be $3.4-3.7 billion, depending on the exchange rate and the closure date, which Gref expects to be by the end of the year.
($1 = 61.6073 roubles)
Writing by Katya Golubkova; Editing by Andrew Osborn and Elaine Hardcastle