Bank of Moscow troubles raise question of mgmt quality at state-owned banks - Fitch
MOSCOW. July 29 (Interfax) - The financial condition of Bank of Moscow and its acquisition by VTB raise questions about the quality of corporate governance at banks owned by the government, a report by rating agency Fitch Ratings says.
"The failure in July 2011 of Bank of Moscow (BOM; 'BBB-'/Stable), and its acquisition by VTB Bank ('BBB'/Stable) with minimal prior due diligence, have highlighted the potential for major negative surprises in the Russian banking system, and also called into question the quality of governance at state-owned banks and the effectiveness of central bank supervision. Fitch expects the provisioning of problem loans at BOM to have a material negative impact on aggregate sector asset quality and capitalization ratios, probably in Q3 2011," the agency said in its Semi-Annual Review and Outlook.
VTB has owned 46.48% of the Bank of Moscow stock and a blocking stake in Capital Insurance Group (which holds around 17% of the bank's stock) since this past February. VTB plans to increase its stake in the bank to full ownership by the end of this year.
After the buy-in and the replacement of Bank of Moscow management, the new shareholders became aware of the low quality of the bank's credit portfolio. The problem, according to VTB, lies in about half of Bank of Moscow's loan indebtedness, and that almost a quarter of it is unrecoverable.
The Central Bank and Deposit Insurance Agency (DIA) took the decision on Bank of Moscow's financial rehabilitation on June 30. The plan involves the DIA extending the bank a ten-year credit of 295 billion rubles at 0.51% per annum. It also involves increasing the bank's charter capital with 100 billion rubles from investors - VTB group organizations.
Implementation of this plan begins with the consolidation of 75% of Bank of Moscow shares by the VTB group. VTB management is now negotiating this with Bank of Moscow minority shareholders.