Deposit Insurance Agency to lend Bank of Moscow 295 bln rubles at 0.51%
MOSCOW. July 1 (Interfax) - Russia's Deposit Insurance Agency (DIA) will provide a loan of 295 billion rubles to Bank of Moscow at 0.51% annual interest for 10 years, the Central Bank said in a press release.
The Central Bank will provide the money to DIA in the form of a five-year loan at 0.5% annually.
The VTB Group is also expected to boost Bank of Moscow charter capital by 100 billion rubles.
A rescue loan for Bank of Moscow has been approved, the DIA's first deputy head, Valery Miroshnikov, said.
DIA's senior management examined the issue on Thursday together with the Central Bank of Russia's board of directors.
"Bank of Moscow will receive a loan. We will not be buying bad assets," Miroshnikov said, commenting on the decision made on Thursday.
The measures were cleared with the Banking Oversight Committee in accordance with the federal law on Additional Measures to Strengthen the Banking System in the Period to December 31, 2011.
The CB credit and the charter capital increase are designed to eliminate the circumstances that resulted in an unstable financial position at Bank of Moscow and to ensure it's the stability of its operations. "The measures will ensure the sustainable operations by bank of Moscow," the statement says.
VTB told Interfax that it planned to comment on the CB's statement later.
Bank of Moscow said in a press release that a plan to work with its problem assets would be devised in conjunction with the DIA. It said the problems with its loan portfolio resulted from the previous management's actions.
Bank of Moscow said it would be developing efficiently and building its own business, relying on its own strength and experience and on partnership support from VTB. "We can confirm that all of Bank of Moscow's commitments before investors, clients and account-holders will be honored in full," it said.
The Central Bank was due to complete an inspection at bank of Moscow by June 30.
VTB acquired 46.48% in Bank of Moscow in February along with a blocking stake in Capital Insurance Group, which owns around 17% of Bank of Moscow, from the City of Moscow for 103 billion rubles. After several months of resistance on the part of Bank of Moscow's previous management headed by Andrei Borodin, VTB put up its own candidate, Mikhail Kuzovlev, as president at Bank of Moscow in April.
DIA chief Alexander Turbanov told reporters the bailout loan for Bank of Moscow would be provided once VTB had increased its stake to 75%.
He said VTB had already held talks with the bank's shareholders.
The rescue package involves the participation of two members of the VTB Group, he said.
The DIA loan will be secured, but Turbanov did not say what collateral will be used.
The DIA's Miroshnikov said the rescue plan also involved Bank of Moscow building up loan-loss provisions to Russian Accounting Standards (RAS) over a period of three-to-four years.
"The real economic problem will be resolved, the problem will covenants will be healed," he said.
A long-term loan was being issued at discounted interest, which will produce a one-off capital increase to International Financial Reporting Standards (IFRS). This will offset the cost of provisioning 150 billion rubles. "The main problem is that the auditors are not verifying the annual report. If they see this transaction, they will verify if and the problem with the covenants will be cured," he said.
He also said the DIA would require around 300 billion rubles in collateral for the bailout loan. "We'll accept as much as we provide in loans. Maybe will offer a small discount," he said.
The bank's loan portfolio can be split in two. "One half is than of a normal market bank, and the other is Borodin's bank," he said, referring to the bank's former president, Andrei Borodin.
"Even if the bad assets are removed, there's an excellent portfolio of around 400 billion rubles," Miroshnikov said.
Miroshnikov also said the DIA planned to conduct a check at Bank of Moscow by October and to agree on the rescue schedule by November.
The DIA also plans to help Bank of Moscow to draft the paperwork for the law enforcement agencies with respect to the bank's former managers who took decisions as a result of which the quality of the bank's assets deteriorated.
The Central Bank's check showed that around 150 billion rubles of the bank's loans are "bad" and 250 billion rubles fall into the "problem" category."
VTB is counting on state assistance with Bank of Moscow, the chairman of the latter bank's board of directors and president of VTB, Andrei Kostin, said at Bank of Moscow's annual shareholder meeting on June 27.
"VTB Bank will provide assistance to Bank of Moscow. We hope that the government also provides support," he said.
"The situation is quite difficult at the bank," Kostin said.
VTB thinks the problems with the bank's capital are related to loans issued in the past to firms associated with Andrei Borodin.
Interfax sources have said VTB is prepared to invest 100 billion rubles in the bank's recovery in several tranches, in other words around as much as it paid for the shares that it bought from the city. Unconfirmed reports put the overall cost of the bank's rejuvenation at 250 billion rubles.