Will crashed banks' assets be liquidated in new way in Russia?

Will crashed banks' assets be liquidated in new way in Russia?

Russia’s Deposit Insurance Agency (DIA) is preparing a reform of liquidation of crashed banks for a quick public sale of their assets, the DIA’s head Yury Isayev said.

The agency currently deals with liquidation of 321 banks with a balanced value of their assets of 3.78 trillion rubles, and the average liquidation period is around three years. The number of banks managed by the DIA grew rapidly over the past few years. At the same time, the liquidation process is long, and as time passes a number of assets become cheaper and as a result creditors receive less. Isayev noted that in this situation, the central bank recently decided to be the one responsible for a bailout of banks.

The DIA proposes to estimate the quality of assets, allocate them for sale and prepare for the deal shortly after a banking license is revoked. This is expected to reduce the liquidation period to 18 months and make the process more transparent.

"The idea is to eliminate endless court procedures, which mostly do not bring an expected result, and focus on a quick, public and resultative sale until the asset is depreciated," the Vedomosti business daily cited Isayev as saying.

Isayev added that the government and the central bank on the whole supported the initiative.

The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, speaking with Vestnik Kavkaza, noted that the DIA seeks to take some of the responsibility for the liquidation of banks off of itself.

"This is an attempt to introduce a procedure for simplified liquidation through the sale of these banks' assets, which, in my opinion, is likely to have little effect on the efficiency of the procedure, especially if it is sold at a Dutch auction that implies a decrease in the value of assets. It rather looks like an urge to responsibility for setting right prices for assets off of liquidators of banks , because Dutch auctions lead to the establishment of a lower value for them. That is, the Central Bank wants to establish procedures, where it would be protected from risks," he said.

Professor of the RANEPA faculty of Finance, Money Circulation and Credit, Yuri Yudenkov, in turn, stressed that the acceleration of the bank's liquidation procedure would not necessarily increase the efficiency of closing debts to creditors. "High speed of the procedure is a very good thing, since the number of banks that no longer conduct financial activities, but still remain legal entities during their liquidation reaches 700, which is higher than the number of operating banks. And after 3-4 years there is almost nothing left to sell. In this respect, any acceleration of procedures would be great," he said.

"The Dutch auction is very fast, the winning bidder is the one with the highest bid, even if the winning bid is much lower than the starting price. So, there are risks of too cheap asset sales. That is, the main thing is to hold it in the conditions of the broadest publicity," Yuri Yudenkov concluded.