FC Otkritie, eighth largest lender, is rescued by CBR

RUSSIA ENERGY / FINANCE - In Brief 30 Aug 2017 by Marcel Salikhov

---

CBR announced yesterday that it will bail out FC Otkritie, an eighth largest Russian banks by assets and until recently the largest private bank. Financial troubles of Otkritie have surged since June after ACRA, a national rating agency, rated it as BBB-. The credit rating was a notch lower than it is need to attract federal budget and pension funds money. It also means effectively removal from CBR’s Lombard list. ACRA’s decision triggered outflow of funds from the bank. Banks’ books show outflow of more than 430 bln RUB of deposits in June-July 2017. Other banks have also cut their limits on Otkritie resulting in large drop in interbank credit. The liquidly gap was cover by CBR which provided additional repo financing and an unsecured loan. But as situation have probably worsened in August CBR have decided to step in and effectively nationalized the bank. Authorities will use new mechanism of Consolidation Fund of the Banking Sector (FCBS) as the law prohibits equity participation of CBR in commercial banks (Sberbank is direcly exluded from this provision). FC Otrkritie deposits by category, Jan 2014 - July 2017Source: CBR, IEF calculations Many observers have welcomed CBR’s stepping in as the decision eliminates uncertainty for depositors and creditors of Otkritie. So it is positive for short term financial stability. We do not see any contagion effects for other private banks after CBR’s decision. But at the same Otkritie situation raises serious questions about sustainability and skeletons in the cupboard of Russian banking sector. Otrkritie pursued aggressive expansion strategy with constant hunger for M&A. This year the bank was in the process of consolidation of...