Russia’s Central Bank to sell B&N Bank and Otkritie Bank on the stock market

Eurasia Business News – October 2, 2017

A B&N Bank office in Moscow, Russian Federation, October 2017

Photo credit : Swann Bigot

The Russia’s Central Bank Chief told about the fate of the two rescued major private banks

On September 29, during an interview with Rossiya 24 TV channel, the head of the Central Bank, Elvira Nabiullina, announced how the institution will withdraw from the capital of the rescued lenders B&N Bank and Otkritie Bank. The withdrawal is expected to be held in a short time – up to eight months. In the same time, the Central Bank has not fully assessed the scale of problems in these two major private lenders, reported the daily Kommersant.

The private lender Otkritie bank and B&N Bank, Russia’s 12^th largest bank by assets, (which have been rescued on August 29 and September 21, respectively) will be likely sold in public offering of shares on the stock market, announced Elvira Nabiullina.

“We do not need a single strategic investor. We just want to open the capital of these banks, we want a public offering of shares, so that it would be interesting for mass investors”, explained the head of the Bank of Russia.

So far, the Russian banking regulator had not expressed such plans – it was only mentioned that the Central Bank will try to get out of the capital of rescued banks as quickly as possible and sell them to a market investor. The institution gave such comments in response to reproaches alleging that with the reorganization of the two large private lenders, the risks of state-building of the Russian banking sector were increasing.

Elvira Nabiullina stressed that there is no policy of nationalization of banks, there is only a temporary entry of the state into the capital of rescued banks.

“We are talking with the new expected management that the incentive system will also stimulate to work more quickly to bring the banks to the market, – she clarified. It is clear that the market will believe this only when it sees that these banks are being brought to the market.”

According to Mrs. Nabiullina, the decision to recapitalize the two private lenders results from the need to remove inefficient banks from the market.

“We are not ready to leave inefficient banks on the market only because they are private entities and there is a risk of state ownership”, stated the Central Bank Chief.

Besides, Mrs. Nabiullina promised to attract the maximum number of independent directors to the management bodies of Otkritie bank and B&N Bank : “We adhere to the principles of transparency, the maximum attraction of independent directors.”

In addition, the Head of the Bank of Russia explained that the institution will recover the two rescued banks issuing new money in an amount of several hundreds of billion rubles – several billion dollars (the balance sheet hole for Otkritie bank is 250-400 billion rubles while it reaches 250-350 billion rubles for B&N Bank, but the Central bank said it may revise those estimates after a full review of their accounts).

The Head of the institution assured that the rescue operation will not generate inflation risks: “Even these amounts will not necessarily lead to an increase of the money stock”.

“We are now pursuing an inflation targeting policy. Of course, we will absorb these funds so that the rate would allow us to achieve the expected level of inflation – close to 4%.“

Mrs. Nabiullina added that the FIFA World Cup, which will be held in Russia in 2018, can favorably affect the dynamics of inflation.

Note that the First Deputy Central Bank Governor Dmitry Tulin added during an interview with TASS Russian news agency on October 2^nd that the large amount of money that will be issued to rescue the two private lenders will not generate inflation risks because the money will remain within the banking system rather than entering the currency market.

Finally, the rescued B&N Bank will very likely merge with the lender Otkritie, revealed Dmitry Tulin during the interview.

On September 21, after the announcement of the decision on the rescue of B&N Bank, the Central Bank explained the situation that led to such an operation. The owners of the group, like the owners of Otkritie bank, “failed to adequately assess the risks they assumed and failed to cope with a series of complex transactions to consolidate and sanitize other banks” according to the daily Kommersant.

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