The Central Bank of Russia will check the credit organizations’ assets in foreign depositories

In 2015 one of the key events on the bank accommodations market was the revocation of Probusinessbank’s license by the order of Bank of Russia № OD-2071 from 12.08.2015. According to press-release of the Central Bank of Russia, noncompliance with the capital adequacy standards served as a formal reason for revocation of license. Noncompliance resulted in decrease in own funds lower than minimum value of authorized capital, which was set on the date of credit organizations state registration. This, in turn, was a result of high-risk activity, connected with placement of funds in low-quality assets, that led to full loss of own funds by the bank.

The results of further proceeding of the Central Bank, published in mass media, showed, that on the date of license revocation, the assets value including reserves amounted to 146,8 bln RUB, liabilities value amounted to 148,1 bln RUB. Meanwhile, the property with the value of 61.5 bln RUB (almost 42% of all assets) was purchased and stored under contracts with non-residents. The property consists of securities of Atlas Investment Solutions (Luxembourg), the warrants¹ of Mediobanka International S. A., securities in depositaries: Brokercreditservice (Cyprus) Ltd and Otkritie Capital International Ltd, monetary requirements for transactions with currency and securities to Ambika Investment Ltd and Dinosaur Merchant Bank Ltd (UK) and funds, placed in Falcon Private Bank Ltd.

Further it turned out, that securities of Atlas Investment Solutions and warrants of Mediobanka are not listed and not traded on the market and also have no rating. The rest of Probusinessbank’s funds on the accounts of Dinosaur Merchant Bank Ltd, Baltikums Bank AS, Lavuas Pasta Banka and Falcon Private Bank Ltd totaling about 6,3 bln RUB are not confirmed by extracts, besides, the activity of Falcon Private Bank Ltd turned out to be unprofitable. Ambika Investment Ltd is almost the only contractor for currency transactions on terms, which are quite different from the market. Herewith the deals took place in order to increase profits. Highly liquid assets on total sum of 28,3 bln RUB were placed in Brokercreditservice and Otkritie Capital International and the same depositories provided loans to Merianol and Ambika Investment Ltd on total sum of 25 bln RUB. These companies, in turn, didn’t fulfill the obligations to depositaries; as a result, the property was lost by Probusinessbank. The charge over securities was hidden from the Central Bank.

The funds (totaling about 3 bln RUB) of six borrowers, who had technical and economic relations with the bank, were placed on the operating account of the general contractor in Trast Komercbank (Riga). The debts of other companies to the bank amounted to 5,8 bln RUB.

Thus, the transfer of assets can indicate about the fact, that bank owners use their powers contrary to the legitimate interests of creditors and depositors.

Revealed scheme of the withdrawal of assets abroad served for the Central Bank as a substantial reason for the beginning of mass checks of securities portfolios of banks, which hold them in foreign depositories. 

The placement of the securities in foreign depositories is not a violation of the law. However, according to experts, this allows to pledge securities and not to make a reserve for them. The Central Bank can’t receive data from foreign depository without appropriate permission and, therefore, has no information about the charges over securities. Such practice is quite widespread and many banks use it for project financing.

Last week deputy chairman of the Central Bank Vasily Pozdyshev during the meeting with bankers reported, that in 2016 the controller is going to make a request to the banks concerning cash flows, placed in foreign banks, in order to verify the correctness of the financial statements. The same procedure will be carried out in relation to securities in foreign depositories.

According to experts, the Central Bank may pay special attention to small and average private credit institutions, which use foreign banks and depositories to avoid the normative standards or withdraw funds in favor of shareholders. As a result, a new wave of revocation of licenses is possible.

According to the Central Bank data as of 1 October 2015, 767 active credit institutions and 1498 branches are registered in Russia. The subscription on Information and Analytical system Globas-i® will let to get acquainted with their activity, financial indicators and archival information concerning banks with revoked licenses.

¹Warrant is a security paper, which give to the owner the right to buy a proportional number of shares at a specified price (as a rule, lower than the current market price) within a specified period of time