Page 20 - RusRPTFeb19

Both banks were among the so-called Garden ring banks that ran into trouble in September 2017 after the domestic ratings agency Russian Analytical Credit Rating Agency (ARCA) withdrew their AAA ratings starting a run on these leading commercial banks as state-owned enterprises are banned from doing business with banks with less than a AAA rating.
By the end of the year the Garden ring banks were close to collapse and almost started a system wide meltdown until the regulator took them over using the new Banking Sector Consolidation Fund (BSCF) to indirectly own the banks. Since then the CBR has been trying to restructure them to get them back on their feet before eventually selling them off.
In Otkritie and Binbank’s case it has been decided to merge the two banks. Another of the Garden Ring banks, Promsvyazbank (PSB) has been designated a specialised bank to deal with the defence sector that is also designed to make financial transactions in the defence sector impervious to US sanctions.
The CBR has allotted RUB459bn for the recapitalization of the Otkritie Group of which RUB189.1bn was used to fill a hole in the bank’s balance sheet and another RUB182bn as capital. Binbank got RUB56.9bn from the CBR.
A fourth Garden Ring bank, Trust bank that was originally set up by exiled oligarch Mikhail Khodorkovsky, has been turned into a so-called “bad bank” that takes and restructures troubled loans from other banks as part of their balance sheet clean up efforts.
Trust bank will take over both Otkrytie and Binbank bad loans. Otkritie last year transferred assets worth RUB438bn on paper to Trust, while Binbank planned to transfer RUB110bn. According to Trust, the Otkritie asset transfer has already been completed, while Binbank is 95% of the way through the process.
Zadornov did not specify what the assets of the merged bank will be. In October, he estimated them at RUB2.3-2.4 trillion, which would make the merged bank the sixth largest in Russia by assets according to Interfax CEA ranking as of the third quarter of last year.
After clearing out the problem loans, both banks will be left with a small loan portfolio, both retail and corporate, that is disproportionately small compared to the bank’s capital, according to Ivan Uklein, junior director of banking ratings for Expert RA, as cited by Vedomosti.
Once the merger is complete the banks will be open fro business and need to rapidly build up their business. The banks hope to have a 5% share of the main market segments by the end of 2020, according to Zadornov, who is currently probably Russia’s most highly respected banker. Zadornov is a former First Deputy Prime Minister and Finance Minister and was hired to his current job away from running the retail arm of state-owned VTB bank, VTB- 24.
The bank plans to attract over 330,000 corporate clients and over 5mn retail customers in the next two years. If successful then the bank’s net profit should increase up to RUB68bn under Russian Accounting Standards (RAS), according to Zadornov.
Otkritie has already returned to profit, earning RUB3.3bn in the first eleven months of 2018, while Binbank brought in RUB62.6bn in the same timeframe. The loan portfolio of Otkritie began to grow in the fourth quarter, according to the rating agencies and should continue to grow in 2019.
In the first quarter of 2019, the merged bank intends to rebrand and unite all its operations under the Otkritie brand, says Alexander Pakhomov, head of the regional bank unit.
20 RUSSIA Country Report February 2019 www.intellinews.com