Russia’s CBR pulls Central European Bank licence, number of banks falls to 518 in August

Russia’s CBR pulls Central European Bank licence, number of banks falls to 518 in August
The total number of banks in Russia fell to 518 as of August 1. / bne IntelliNews.
By Ben Aris in Berlin August 24, 2018

The Central Bank of Russia (CBR) this week pulled yet another licence from a lender, bringing the total number of banks operating in Russia down to 518 as of the start of August.

The regulator has waged a five-year-long campaign to clean up the banking sector by closing down small and iffy banks, most of which were either glorified treasury operations for industrial groups or were out and out scams designed as money chutes to whisk cash offshore undetected.

Since being appointed the governor of the CBR in June 2013, Elvira Nabiullina has overseen a revolution in the banking sector. As the chart shows, the number of banks in Russia has fallen steadily since the day she took over as governor, starting with 958 in June 2013 and moving down to 518 as of August 1 this year.

Nabiullina has closed about one bank every three days during her time at the helm, but the process became harder last summer when she closed the first too-big-to-fail commercial banks, the so-called Garden Ring banks, that nearly caused a banking crisis. They havecost the state trillions of rubles in rescue money.

This week the CBR closed the Central European Bank based in Chita, which was the 322nd biggest bank in Russia by assets. The CBR pulled its licence because it was a “real threat to the interests of creditors and investors.”

The small banks are too small to do much traditional banking business and most eke out a living in niches taking advantage of their ability to borrow money more cheaply on the interbank market than companies can raise from bank loans.

The Central European Bank business was mainly comprised of issuing guarantees for corporate clients, according to the CBR. It had built up a total of RUB6.5bn ($96mn) in guarantees, which was nine-times higher than the bank's own funds. In other words, the bank’s business was a variant on a pyramid scheme.

"The formal approach used by the bank to evaluate the activities of the principals ultimately led to a significant increase in the current year losses related to the fulfillment of obligations under the guarantees provided, including in the courts," a CBR statement reads.

The bank conducted a risky credit policy, which led to the formation of a significant amount of low-quality assets on its balance sheet, the report said. The Central Bank revealed a significant decrease in the bank's own capital and saw a threat of bankruptcy.

Over the past year, the CBR has applied four measures to the Central European Bank for supervisory purposes. The bank's owners did not take measures to normalise its activities, the regulator stressed. The Central European Bank is a member of the deposit insurance system and the state is obliged to bail out its depositors if the bank goes to the wall.

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