Russia: A Cash-Strapped Kremlin Bails Out the Country's Largest Lender

2 MINS READAug 29, 2017 | 19:00 GMT

Russia's central bank announced on Aug. 29 that it plans to seize control of the country's largest private lender — Otkritie Bank — before June. The bank has tottered toward collapse in recent months, following a surprise downgrade that prompted a massive deposit outflow of $7.4 billion in June and July — nearly a quarter of its total deposits. Had Otkritie collapsed, it would have hurt Russia's entire financial system.

The central bank assured depositors it would run the bank as normal, but the takeover will shrink investor and shareholder control of the bank to 25 percent and will push the bank's debts onto investors and shareholders. The bank's shareholders are founder Vadim Belyaev, private oil firm Lukoil, state-run VTB Bank, and oligarchs Alexander Nesis and Alexander Mamut. If they don't clear the bank's debts within the next eight months, the state will eliminate their stakes.

The central bank is reportedly eyeing four other large private banks for possible seizure. Russia's banking sector is notoriously over saturated with hundreds (formerly thousands) of banks left over from the chaotic 1990s when privatized firms, foreigners, oligarchs and mini-garchs opened up a slew of banks. The Russian state purged hundreds of the institutions during the 2008-2009 recession and is continuing to get the financial sector under control. But the takeover of Otkritie comes at a time when the Kremlin lacks the surplus of cash it had before the 2014 drop in oil prices and the recent recession, calling into question the feasibility of the move. Russia is recovering from recession, but spending is still tight. Yet, because of upcoming elections, the Kremlin is increasing its social spending to prevent social backlash: Saving Otkritie Bank is part of this effort. 

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