A visitor approaches the headquarters of the Russian central bank, also known as Bank Rossii, in Moscow, Russia, on Friday, Dec. 16, 2016. Russia’s central bank left borrowing costs unchanged for a second meeting while also opening the way to monetary easing after this year’s unprecedented pledge to keep interest rates on hold. Photographer: Andrey Rudakov/Bloomberg
Russia's central bank. Taxpayers are footing the largest bank rescue bill in the country’s history to fund its takeover of three privately held lenders © Bloomberg

Russia’s central bank is to create a “bad bank” to ringfence Rbs1.1tn ($19bn) in toxic assets from three nationalised top-10 lenders, vastly increasing the total bill for bailing them out. 

Vasily Pozdyshev, a deputy central bank governor, told Russian news agencieson Monday that the central bank would transfer assets from three collapsed banks into Trust, anotherfailed lender. 

The new bad bank will receive a Rbs1.1tn loan at a non-market interest rate of 0.5 per cent for a year before eventually surrendering its banking licence once the debts are recouped or written off, Mr Pozdyshev said. He estimated that 40 to 60 per cent of its total assets could be repaidwithin three years. 

Taxpayers are footing the largest bank rescue bill in Russia’s historyto fund the central bank’s takeover of three privately held banks last year to stave off a collapse in the sector. 

The largest of them, Otkritie, was Russia’s biggest privately held bank by assets until it was nationalised in August. The central bank then nationalised B & N Bank, another top-10 lender, and Promsvyazbank to stop them from going under. 

Elvira Nabiullina, Russian central bank governor, decided to merge Otkritie with B & N in the hope of selling it in an initial public offering by 2020. Promsvyazbank is to become a specialist lender for the Russian defence industry, with an eye to helping other Russian banks avoid penalties for servicing US-sanctioned companies. 

The central bank has alreadyspent Rbs626bn on recapitalising the banks and given them Rbs1.4tn in liquidity. Mr Pozdyshev said on Monday that Otkritie had received Rbs710bn in total liquidity funds, B & N received Rbs418bn and Promsvyazbank Rbs230bn. About half of that sum was given in the form of cheap bridge loans at 0.5 per cent interest, Mr Pozdyshev said.

Under Ms Nabiullina, the central bank is conducting an unprecedented clear-up of the sector under which it has wound down more than 300 banks since 2013. To rescue the three top-10 lenders, however, Ms Nabiullina had to create a separate bailout mechanism that allowed the central bank to take direct stakes in their capital. 

Trust, the new “bad bank”, had been seen as emblematic of the failings of the previous system, whereby the central bank gave other banks cheap, long-term funding to absorb collapsed lenders.

A customer uses an automated teller machine (ATM) operated by Bank Otkritie FC in Moscow, Russia, on Wednesday, Aug. 30, 2017. Bank Otkritie FC is the first bank to be taken over by a fund created so that the central bank can carry out rescues without private investors. Photographer: Andrey Rudakov/Bloomberg
Otkritie was Russia’s biggest privately held bank by assets until its nationalisation in August © Bloomberg

Mr Pozdyshev said that the Rbs1.1tn figure came from “untangling the interbanking”, whereby the parent banks transferred assets to the failed lenders they were absorbing. Otkritie had Rbs372bn deposited in Trust, while B & N kept Rbs779bn in deposits in another failed bank it was rescuing.

The central bank is now demanding that Otkritie’s former owners repay Rbs28bn of the funds it was given to bail out Trust. Otkritie also filed nine lawsuits in the past week seeking more than Rbs6bn in damages from those former owners. Its pension funds are also suing O1 Group, a company controlled by Otkritie founder Boris Mints, for Rbs4.7bn. 

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