The Central Bank of Russia (CBR) announced it will nationalise yet another Garden Ring bank — Promsvyazbank (PSB) — on December 15.
Only a day earlier the CBR demanded that PSB, one of four leading commercial banks that were identified as being in trouble earlier this year, inject a massive RUB100bn ($1.69bn) of fresh capital — more than ten-times the amount the owners were planning to invest — but pulled the plug on the lender less than 24 hours later.
PSB is the country’s ninth largest lender and this is the third such collapse in under four months.
The regulator will use the new Banking Sector Consolidation Fund (BSCF) to take control of the lender that has RUB1.3 trillion in assets and has been expanding aggressively in recent years. The advantage of using the BSCF is that there is no need to close the bank and trigger returning depositor’s money using the Deposit Insurance Agency (DIA).
In theory this is a cheaper way to close down commercial banks that are becoming too big to fail, simply due to the cost of the bailouts. PSB is also on the CBR’s list of strategically important banks and its collapse could cause system-wide problems. PSB will continue to function as normal and receive extra liquidity support for the meantime, the CBR said.
But there could be surprises. The closure of Financial Corporation Otkritie in September has already become Russia’s most expensive bank rescue ever, after the CBR injected over RUB456bn into the failed lender to keep it afloat.
Brothers Dmitry and Alexei Ananyev, who have been struggling to put the institution back on an even keel, own PSB. The CBR’s capital injection demand was enormous, giving the lender's existing reserves of RUB152.7bn as of November 1. PSB is expected to collect RUB8bn in December from spinning off non-core assets and was intending to add the same amount again by investing profits into its capital.
The Garden Ring banks have all come under increased pressure since the spring as the CBR tightened its supervision of the sector. Problems first surfaced in June when Russia’s new domestic ratings agency Analytical Credit Rating Agency (ACRA) downgraded Otkritie to BBB, which precludes it from holding state money like pension funds.
The fourth Garden Ring bank named as being in trouble is Credit Bank of Moscow, which so far seems to have coped with the shocks to the system. However, PSB and CBOM have many of the same shareholders and given the opaque and incestuous nature of the loan books, there could be more trouble ahead.