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Economy
Russian Regulators Take Over Retail Bank
From the Wall Street Journal of Mon, 22 Dec 2014 15:14:40 EST
National Bank Trust had aggressively wooed depositors with high interest rates and advertising featuring actor Bruce Willis.
National Bank Trust had aggressively wooed depositors with high interest rates and advertising featuring actor Bruce Willis. Reuters

MOSCOW—Russian regulators took over a leading retail bank Monday, as the impact of last week’s currency crisis reverberated through the economy even as the ruble recovered.

Russia’s Deposit Insurance Agency said it had temporarily taken over OAO National Bank Trust and was prepared to provide up to 30 billion rubles ($549 million) in funding as it sought an investor from among the ranks of Russia’s other major banks to take over ultimate control. The agency said the takeover would ensure “normal” operations of the bank, but customers reported huge lines at branches in Moscow and difficulties withdrawing funds.

Banks across Russia reported a surge in depositors taking money out last week as the ruble plunged to record lows early in the week and the central bank hiked interest rates to steady the currency. The crisis was a major blow to the banking system, already weakened by Western sanctions and the souring economic outlook. Authorities scrambled to shore up the banks, with parliament approving laws in a single day to provide 1 trillion rubles in new capital, while the central bank temporarily eased regulatory requirements.

Underlining the urgency of the situation, Prime Minister Dmitry Medvedev gathered top bankers for a special meeting Monday to “synchronize our watches” on measures to stabilize the markets and the financial system.

“There’s a long period of holidays coming up and, on the one hand, we all need to be prepared, and on the other, to give people a chance to rest without worrying what will happen in the financial and banking systems,” he said at the opening of the meeting, according to a government transcript.

The ruble, meanwhile, extended its rebound Monday, boosted by rising oil prices, high local interest rates and a wave of Kremlin exhortations to major exporters to sell more of their foreign-currency revenue. The ruble was trading at 55 per dollar by late afternoon in Moscow on Monday, well up from levels beyond 60 per dollar seen last week.

“The frenzy of retail FX buying is receding,” Sberbank wrote in a note Monday, while corporations are accumulating rubles for year-end tax payments coming up. “However, the market will likely remain tense following the sharp swings last week.”

The central bank last Monday hiked its key interest rate to 17% to stem the drop in the ruble and overnight-lending rates spiked to nearly 30% later in the week and banks scrambled for funding.

Even as the ruble steadied, the economic damage from the crisis deepened.

Trust was ranked no. 15 in retail accounts at the end of the first quarter and no. 32 in assets overall in Russia.
Trust was ranked no. 15 in retail accounts at the end of the first quarter and no. 32 in assets overall in Russia. Bloomberg News

Former Finance Minister Alexei Kudrin, who remains an adviser to the Kremlin, warned that Russia is heading into a “full-scale economic crisis” next year, with inflation spiking to as much as 15% and gross domestic product contracting by as much as 4%. He warned that Russia’s credit rating could be downgraded to “junk” and the country could face a “cascade of defaults” among companies as the contraction deepens.

That is a more drastic outlook than the government’s official position. President Vladimir Putin last week reassured Russians that the economic difficulties would be manageable and last no more than two years.

But signs of pain emerge almost daily.

On Monday, Avtovaz , the country’s largest car maker, cut its 2014 sales forecast, saying it expects to sell 30% fewer vehicles than last year. “The volatility of the Russian currency against the dollar and euro impacts the whole Russian market,” Chief Executive Bo Andersson told state television.

Sberbank, the national savings bank, said it was suspending car lending and some mortgage products, while raising rates on others. Sberbank said most of its auto lending is conducted through a subsidiary, which will continue that business.

Sberbank and VTB, both state-controlled, dominated Russia’s banking system, accounting for the bulk of deposits and lending. The government has been steadfast in ensuring their financial stability.

But other, smaller banks have struggled, scrambling to keep depositors with offers of higher and higher deposit rates and better loan terms.

“After the recent rate hike there was a feeling that a number of banks wouldn’t survive,” said a banking expert at one of Russia’s largest state-run banks. Trust, with its significant retail business, “is important for the system” and thus couldn’t be allowed to fail, he said.

Trust, ranked no. 15 in retail accounts at the end of the first quarter and no. 32 in assets overall in Russia, had aggressively wooed depositors with high interest rates and advertising featuring actor Bruce Willis. Ruble rates under its “Generous Rates” program ran as high as 21% annually, while dollar accounts could earn 8%, according to the bank’s website.

In a statement on Monday, Trust said the takeover by regulators wasn't a bankruptcy but a restructuring and thus all obligations would be met “in full and without any restrictions.” A spokesman couldn’t be reached for further comment.

Trust’s problems appeared last week, depositors said. Russia’s Society for the Protection of Consumer Rights said Monday that Trust was one of several banks about which it had received complaints from consumers who said they weren’t allowed to collect their foreign-currency deposits on time.

Yuri Tseplyaev, said he tried to close his account at a Moscow branch on Saturday but “the line was outlandish, and I left without even entering the office.” Other branches had similar lines on Monday, he said.

—Nonna Fomenko contributed to this article.

Write to Andrey Ostroukh at andrey.ostroukh@wsj.com and Alexander Kolyandr at Alexander.Kolyandr@wsj.com



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