The Central Bank of Russia (CBR) has extended an unsecured loan to troubled commercial lender Otkritie Financial Corporation in an attempt to shore up frayed nerves in Moscow’s financial sector, Vedomosti reported on August 21, citing two people close to the deal.
Neither the CBR or Otkritie commented on the report.
“I guess affirms the systemic nature now of Otkritie, and concern in Russian official circles that the tryst around the bank was risking a wider loss of confidence around the country's banking sector,” Tim Ash of Bluebay Asset Management said in an email note.
bne IntelliNews first reported two weeks ago sources saying that Otkritie was “in trouble” and commercial banks were scrambling to cut their exposure to it. Since then the sector has been unnerved as evidenced by a spike in repo deals with the CBR as banks stocked up on cash in case Otkritie collapsed and threatened the system. Otkritie is the fourth largest bank in Russia in terms of deposits.
In the latest development Moody's Investors Service placed on review for downgrade the 'Ba3' long-term foreign- and local-currency senior unsecured debt and deposit ratings of Otkritie Financial Corporation on August 18. The CBR decision is clearly designed to put a floor under the worries over the bank’s future.
The CBR made heavy use of unsecured loans in the past to shore up banks during the 2008 and 2014 financial crises, but has shied away from the mechanism since due to the high cost of the loans. As of the end of 2010, the unpaid debt by banks was RUB46bn rubles, of which RUB33bn was owned by International Industrial Bank (aka Mezhprombank).
“The regulator has probably taken into account the seriousness of the situation with Otkritie, which is why it has given the loan. As a rule, banks borrow from the central bank against their assets.” Clients have withdrawn RUB106bn ($1.8bn) from Otkritie in June, RUB323bn in July and money was still leaving in August. “Everyone on the market were talking only about this,” a senior Russian banker told Prime.
The bank has also dumped nearly 80% of its Eurobond holding worth billions of dollars as well has sold off $500mn of bad debt in efforts to raise cash. The bank is now looking for investors according to reports.