Russia’s state-owned banking behemoth VTB has lost control of the project to set up a new bank on the basis of the nation’s post office branch network.

The long mooted project moved quickly forward last year with VTB being given the lead to set the new bank up, in a joint venture that used the post office’s extensive branch network. VTB was very aggressive in the negotiation on setting up the post bank and was in effect going to take full control of its operations, according to bne IntelliNews sources. The appeal is the access to trillions of rubles of cash payments that flow through the state’s social payment obligations.

Russia is overbanked but one of the problems it faces is the country is so huge, and most regions are so sparsely populated, that it doesn't make economic sense of have banks in all the towns and villages. The post bank dodges this problem, as given the post office is responsible for mandatory payments to the population, in particular paying out pensions, there has to be a post office in every settlement, which can cheaply double up as a bank.

However, nominal head of the new bank Dmitry Rudenko bought two shares in the new bank from VTB, which previously owned 50% plus 1 share on December 28. Now VTB and the post office’s parent company Pochta Rossii own the bank on a parity basis with 50% minus 1 share.

The changes in the shareholder structure for the post bank come out of the blue and the authorities have given no explanation for them. Rudenko says that he will represent the interests of Pochta Rossii on the board, which represents a swing of the pendulum back towards the post office. Rudenko will be an independent player, Vedomosti reports, citing players close to the talks, and with his two shares becomes the kingmaker in the decision making process.

VTB has been subject to increased scrutiny by the Central Bank of Russia (CBR), which clearly is not happy with the way the bank is run. CEO Andrey Kostin admitted this week that the CBR has been inspecting the bank for the last 10 months and has demanded it increase its loan-loss provisions by RUB25bn, doubling the amount the bank was going to put aside to deal with potential bad loans to RUB50bn ($900mn), or about a third of all the profits the bank expects to make in 2017. At the same time it is reported that the Russian rating agency ARCA has refused to give VTB a triple A rating, which would automatically cut it off from holding state funds, although the ARCA report on the bank has not been released. 

VTB was already rolling out the boat on the back of the new bank and intending to go to toe-to-toe with sister bank, retail banking giant Sberbank, that has branches across the whole country. This time last year VTB announced plans to hire 7,000 new employees during a rapid roll out period of the new bank that would encroach on its Sberbank’s traditional domination of retail banking.

Pochta’s former CEO Dmitry Strashnov rolled over and was happy to let VTB take the lead in the bank’s development. However, things started to go awry in the second half of last year. Strashnov has been indicted in a corruption investigation for awarding himself a $1mn bonus. These charges appear to be somewhat egregious, as on the one hand, the size of the bonus for running one of Russia’s very biggest companies does not seem unreasonable when set against Rosneft CEO Igor Sechin’s reported $50mn-plus annual salary or VTB Group CEO Andrei Kostin’s $37mn-plus salary.

The charges again Strashnov smack of political gamesmanship as at the end of the day the post bank will emerge as a huge new player in Russia’s financial sector and would have significantly enhanced VTB’s power in the sector if it remained in full control of the business.

According to the Vedomosti report there is even talk of VTB eventually exiting the postal bank entirely after it is up and running. “The idea was discussed that in future VTB can transfer its share to Post Bank to someone else,” the paper cited a person familiar with the top managers of both shareholders, as well as the state banker and one of the federal officials as saying. However, VTB has denied that its role in the post bank is temporary.