Russian Central Bank to 'bail out' Promsvyazbank

Russia's central bank said that it had put Promsvyazbank under temporary administration as part of a bailout plan.

The central bank said in a statement it was providing funds to support Promsvyazbank’s liquidity and would send in temporary administrators.

It said there would be no moratorium on Promsvyazbank meeting creditors’ claims, and that the bank was operating as normal.

Under the central bank’s standard procedure, a bank is first put under temporary administration, then bailout funds are injected from a special central bank fund.

Promsvyazbank is Russia’s 10th biggest bank by assets, according to Interfax data. 

Russia’s Vedomosti newspaper had reported, citing sources, that the central bank had told Promsvyazbank to increase its provisions by an additional 100 billion rubles. These data were agreed by Promsvyazbank’s co-owner and chairman, Dmitry Ananyev.

The head of the department of stock markets and financial engineering of the Faculty of Finance and the Banking Business of RANEPA, Konstantin Korischenko, speaking with Vestnik Kavkaza, suggested that a softer policy with respect to Promsvyazbank is due to the fact that the Central Bank is less concerned about its state and prospects than in the situation with Otkritiye and Binbank.

"But in any case, these are the Central Bank's actions to manage the banking system or form a management mechanism. This causes concern. We do not actually have market banks in the top ten, except for Alfabank, I think," the expert noted.

At the same time, he pointed out that it is not yet possible to assess the effectiveness of the current scheme for the rehabilitation of largest banks through the consolidation of the banking sector. "Efficiency can be estimated in a year or two," Konstantin Korishchenko summed up.

Professor of the RANEPA faculty of Finance, Money Circulation and Credit, Yuri Yudenkov, in turn, expressed opinion that the Central Bank will not undertake any particularly drastic moves towards large banks before the presidential elections of 2018.

"First of all, the current activity of the Central Bank in this situation is not fully understood. It does not says what it will do with the formation of the bank's reserves. Second, since a moratorium is not being introduced and Promsvyazbank continues its work, what then what exactly the work of the temporary commission will be? Third, the soft policy may be caused by the fact that the Central Bank did not expect such a scale of bad work of large banks and does not have a clearly defined strategy. Fourth, it is necessary to take into account the pre-election struggle, which introduces a certain political aspect in the Central Bank's behavior," the expert explained.

"Promsvyazbank is a very large bank. It's terrible that such a situation has happened to it as well. And why are we only hearing about it now?" the professor of the RANEPA faculty of Finance, Money Circulation and Credit asks.

In addition, he stressed that there have been no results from the former failed banks yet. "If billions are invested in the banking system, and it continues failing, it means that we are doing something wrong," Yury Yudenkov summed up.