Is Russia’s B&N Bank on brink of collapse?

Is Russia’s B&N Bank on brink of collapse?

Russia’s B&N Bank, the owner of Russia’s 12th biggest lender by assets, has asked the central bank for a bailout, the regulator said today.

The central bank said B&N Bank’s owners, a holding group controlled by tycoon Mikhail Gutseriev, had asked for financial rehabilitation via the central bank’s Fund for Banking Sector Consolidation.

That is the same mechanism that is being used to rescue Otkritie bank, Russia’s largest private lender, after it late last month said it had a hole in its balance sheet and needed help.

The central bank, in its statement, said that it would make a decision on the request from B&N Bank in the near future.

The former chairman of Russian lender B&N Bank Mikhail Shishkhanov said he was taking over at the bank again and would work with the Russian central bank on a rescue package.

Shishkhanov noted that he was in active negotiations with the central bank about accessing a bailout package.

According to him, the aim of the negotiations was to conduct a financial rehabilitation of the bank with the support of the central bank, and to ensure the stability of the Russian banking sector.

He said the rescue being discussed would guarantee the interests of all B&N Bank clients and depositors. He said he had decided to take over again as chairman of the bank’s board.

The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, speaking to Vestnik Kavkaza, noted that this event is not yet a reason for panic, but points to a serious crisis of banking supervision. "If the head of a large bank appeals to the Central Bank and it becomes an official news, this is a serious event," he pointed out in the first place.

"The reasons that could cause the need for B&N Bank's sanitation are similar to those factors that led to the reorganization of Otkritie FC Bank. The main reason is the use of credit resources to lend the group's projects, that is, risky credit policy. High costs of raising funds also could cause troubles," Alexander Abramov explained.

"The event does not speak about the banking crisis, as it's only about selective banks. The obligations to depositors will be fulfilled: almost all deposits are insured, and the Central Bank firmly expresses its intention to help. There is another crisis: the stability of the banking system," the professor at the department of the stock market and investments at the Higher School of Economics concluded.

The head of the Financial Market Research Laboratory of the Gaidar Institute for Economic Policy, Mikhail Khromov, in turn, said that such events are quite normal for commercial activities. "There are risks in any commercial activity, which can be realized, but it makes no sense to panic. The reasons that could cause the need for B&N Bank's sanitation were known to observers who were actively interested in the bank's state of affairs. It was made public today, but  there were rumors from the end of last week," he noted.

"Any sane person who keeps money in banks or is responsible for the distribution of funds in some firm, which are kept in banks, should control this situation, taking into account different sources of information. I think that such people managed to prepare for the bank's sanation," Mikhail Khromov added.

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