Russia’s fifth-largest bank has received the country’s biggest-ever bail-out. The central bank found bad loans on Bank of Moscow’s books totalling $9bn, or nearly a third of its assets. Its response is a $14bn rescue package. The bad loans were exposed when VTB, another bank, gained control of Bank of Moscow after a hostile bid. VTB said the balance sheet was riddled with related-party loans – inadequately backed by collateral – to real-estate projects involving former chief executive Andrei Borodin, who has fled to London. Finance minister Alexei Kudrin has called for a criminal investigation.
This bail-out could be a one-off related to dodgy dealings in Moscow, says Tim Wall in The Moscow News. Borodin was a close ally of mayor Yury Luzkhov, whom the government sacked. Still, it “seems convenient” to pin the blame on the “now-exiled” Lushkov clan. The worry is that the Bank of Moscow debacle “merely exposes practices common across the Russian banking sector, where personal control by billionaire owners and well-connected insiders leads to ‘skeletons in the closet’ being hushed up for years”.
The sector has “never been known for its transparency”, agrees Catherine Belton on FT.com. After the 2008 crisis the markets were worried that the authorities were “closing their eyes to surging problem loans” and softening reporting requirements in order to “keep the sector afloat”. This episode is certainly an embarrassment for banking regulators. Bank of Moscow “was not a second-tier bank… [but] a quasi-sovereign institution at the heart of the state”, as Tim Ash of Royal Bank of Scotland puts it. So it’s no wonder investors have begun to fret about the quality of regulation across the entire sector. The odds of another “Bank of Moscow-style fiasco”, says Belton, “aren’t negligible”.