Page 19 - bne magazine February 2022_20220208

bne February 2022 Companies & Markets I 19
bne:Funds
Russia’s Otkritie bank rescued and ready
to IPO
Ben Aris in Berlin
Otkritie bank nearly went bust in 2017 as part of the so-called Garden Ring bank crisis. It was eventually taken over by the Central Bank of Russia (CBR), which has put the bank back on its feet. Today it is the sixth-largest banking group in Russia by total assets and one of the top three fastest growing financial institutions in the country. The rescue is complete.
A comprehensive overhaul of the bank’s business and model resulted in Otkritie’s assets rising by an average rate of 22%
in the last three years, twice as fast as its larger state-owned rivals, and made it one of the top three fastest growing financial institutions in Russia. And in the first nine months of this year it posted a 1.9-fold year-on-year jump in net profit to RUB58.7bn ($0.8bn), with the return on tangible equity (ROTE) up at 19.1% from 10.9% for the same period a year earlier.
Russia’s banks have been booming and Otkritie back on its feet. Wholly owned by the CBR, it hopes to sell it off or float the first packet to 15-20% of its shares as early as the first half next year, market conditions permitting.
Near death experience
The Garden Ring crisis, so named as it affected half a dozen large commercial banks that mostly have their offices
inside the Garden Ring road that encircles central Moscow, started with the collapse of Financial Corporate Otkritie and takeover by the CBR at the end of August 2017 after months
of speculation and led to a RUB1.1 trillion ($16bn) bailout. It was quickly followed by the takeover of Binbank, another large commercial bank, which got caught in the flak and ran to the regulator on September 20 the same year.
But the antecedents of the mini-meltdown, that at one point looked like it might threaten the stability of Russia’s entire financial system, go back to a new rule introduced that required Russian banks to have the local equivalent of a triple A rating from the domestic Analytical Credit Rating Agency (ACRA) if they wanted to hold the deposits of state-owned enterprises (SOEs). ACRA downgraded Otkritie and several of its peers in April that year. The SOEs had to withdraw their money and that made the other depositors nervous,
who began to withdraw their money too and the whole thing threatened to snowball into a classic bank run.
In the following months there was a mad scramble to shore
up the bank’s liquidity and several turned to the CBR for help. Loans on the interbank market froze up as rumours of a “black list” circulated and volumes on the repo market soared, where banks can temporarily trade in any bonds they hold for cash. But the valiant efforts by management to rescue the struggling bank came to nought and in order to prevent a systemic meltdown the CBR decided to step at the end of the summer.
Some confusion remains to this day as to what actually happened. Dmitry Mints, whose family was formerly a shareholder in Otkritie and whose O1 real estate company remained a big customer of the bank in 2017, told bne IntelliNews in an exclusive interview that the CBR had acted very aggressively and had to some extent precipitated the crisis.
Financial rehab
At the start of 2017 the CBR had already set up the Banking Sector Consolidation Fund (BSCF), a special vehicle that allowed the central bank to be in the unusual position where it is both the banking sector regulator and own banks. The advantage of this setup is there is no need for an expensive bail-out, as the CBR backing should be enough to reassure depositors the bank won’t collapse and put an end to the bank run. The plan from the beginning was to allow Otkritie to recover and then to eventually sell it again.
“The Bank of Russia put Otkritie into the consolidation fund along with several of its other holdings, including Lukoil Garant pension fund, Rosgosstrakh insurance company and RGS Bank, a small car loans specialist,” says Dmitry Levin, the deputy CEO of Otkritie, who was appointed by the CBR after it took over.
The next year the Baltic Leasing company and Life Insurance company were also added. Finally, in 2019 Otkritie was merged with BIN bank on July 2, 2018 and from the next day the combined assets exited the rehabilitation programme and began to function as a regular bank.
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