The Central Bank had switched to the rigid control over business reputation of Bank owners

Clarification of the Central Bank on the supervision of business reputation of Bank owners at the popular lately “regular basis” was recently published on the website of the Association of regional banks of Russia (ASROS). They specialized Department of the Bank of Russia publicly explained what approaches it adheres to the detection of the owners of the banks with revoked license in the existing credit institutions. So far on this account, there were General statements.

The explanation turned out to be unexpectedly hard. According to estimates of bankers, they may affect the interests not only of persons with tarnished reputation, still retains shares in the “live” banks. These shares will be reduced to a level not exceeding 10% (this is a standard tool for the removal of owner a bad reputation from the management of the Bank). But at the same time to prove its business reputation would have a category of owners is quite healthy credit institutions, which had such need arose. In particular, due to reduction in share of owners with damaged reputation shares of other owners can automatically increase to a level requiring confirmation of reputation of the Central Bank (for details on how to operate the recommendations of the Central Bank, see 3).

Among individuals, the reputation of which result from the announced Central Bank’s approach can be questionable, and quite respectable owners of banks, indicate market participants. This response of the Central Bank provoked the bankers themselves (see extract 1 and extract 2) requesting the regulator clarified.

(1) That requested the bankers?

Current explanations of the Central Bank in response to a request from ACROS last spring to the head of the Bank of Russia Elvira Nabiullina. “I appeal to the Association of the credit institution with the problem related to the presence in the composition of shareholders foreign investors participating in the capital of credit institutions with revoked license in connection with their business reputation to be unsatisfactory. Such shareholders will receive from the Bank of Russia requirement within 90 days to reduce its participation in credit institutions to below 10%,” — said in the letter.

To reduce the share of participation you can by selling or transferring it to another investor. It assigns the Central Bank has lost business reputation of the owners up to 90 days. However, as mentioned in the request while at the fault of the old owners are looking for new owners for their packages, the Central Bank lowers assessment of the economic situation of the Bank, irrespective of the real situation in it. This not only deprives the Bank of the right to part of options for refinancing in the Central Bank (makes it impossible to pledge the credit of the assets to the Adjuster 312-P, exclude its securities from the Lombard list), but also lowers the chances of selling the relevant shares or shares, lamented the bankers asked the Central Bank not to lower classification group for such banks, at least until the expiration of the 90-day period. And during this period the stock can try to manage to sell the new “good” owner.

(2) the First victim: East Capital

According to two sources familiar with the origin of this request, it was initiated by the Swedish East Capital with its headquarters in Stockholm and offices in several other countries, including the Moscow office in Russia. East Capital has long been closely working on the domestic banking market.

As indicated by sources , the basis for claims of securities to a business reputation one of the funds of the group, based on Russian banks — “Financials East capital Fund AB” (Financiаls Fund East Capital AB) — was it the number of owners deprived of a license in August 2015 Probusinessbank. For information , this Fund was the share of Akibank and has a share in the Asian-Pacific Bank, Loko-Bank (this information is confirmed by the data on the website of the Central Bank). Other funds of the group are also investing in Russian banks, in particular, in Bank “Saint Petersburg”, but the investment in the banks deprived of the licenses they had and questions to their reputation also arose, explained one of the interlocutors .

As told sources , instruction from the Central Bank to reduce the proportion to less than 10% was sent to the specified Fund for all three banks. The instructions Unibanco Fund even contested in court. The information contained in the files of arbitration cases. However, in August 2016, the proceedings were suspended, and the meeting at which such resolution was passed, was held behind closed doors.

According to information the Fund’s share in Akibank was sold to one of the other co-owners, with shares in two other banks negotiating the sale. “Sam “financials of East capital Fund AB” in the end, it is planned to close,” — said one of the interlocutors .

On official request , sent a few days ago, neither Russian nor Swedish East Capital’s offices have not responded. Also received these banks.

(3) the consequences of the queries: that said, the Central Bank

A key request of the bankers of the Central Bank was satisfied, but not as expected by the bankers.

As stated in the explanation of the decrease in the proportion of owner with tarnished reputation “leads to a proportional increase in voting rights” of the other owners. And those rights will grow to the “size, allowing to exercise significant influence or control” on the Bank’s activities (above 10%), then such owners (if earlier their share was less than 10% and more in some cases) will not have completed the evaluation of goodwill.

Then there are two scenarios.

If someone not previously agreed in the CBA business reputation will gain control over the Bank and before 90 days to gather evidence of its positive reputation, it will be regarded by the regulator as the opacity of the ownership structure of the Bank with a translation of his the third group on the economic situation with all its consequences.

If the share of any of the owners would increase more than 10% but lower than the control, the responsibility for coordination with the Bank’s business reputation also occurs within the 90-day period, the consequences of the document are not explicitly stated, but it implies that sanctions will be less strict.

The reaction of the surveyed bankers (they all asked for anonymity in their comments about the actions of the Central Bank) and the lawyers were rather negative.

“Bona fide investors forced to fall into the category of unfair, though they consciously had a small share in banks, carried out portfolio investments”, — the partner of Legal F1 Farid Babayev.

Thus, although the approach of the Central Bank are the same in relation to Russian and foreign owners, will suffer the latter. “90 days is too short a period for a foreign shareholder to collect all the necessary documents on their business reputation abroad and to legalize them in Russia,” says a top Manager of one of the banks the first hundred by assets. In his opinion, the only way to resolve it absolutely no fault of the owners the breach of the transparency of the ownership structure of the Bank is to redeem Bank a share of such investors. “But it consumes capital and affects liquidity,” he notes. “The result has to be on the verge of transition to the third group, which few people can overcome,” — says one of the interlocutors .

As pointed out by another banker, “Bank is selected, the path is fraught with corruption risk, the risk of unfair pressure on shareholders.”

As the next obvious target of the regulator, market participants suggested banks that have capital are investing us Fund Firebird. Previously it was a share in SOTSGORBANK without a license in 2011. Now discovered he had a stake in SDM-Bank, but it is less than 10%. Maxim Solntsev, Chairman of the Board SDM-Bank, has told that heard nothing about the new approaches of the Bank of Russia. Firebird did not respond to a request .

Some market participants see positive effects of the actions of the Central Bank. “The regulator deliberately closes all loopholes for the shareholders of banks, seen in money laundering, withdrawal of assets. In particular, when problems in one Bank, the Central Bank checks banks that have common owners. Proportional decline in the share of other shareholders — one of the new measures. Imposed on them for paperwork is another lever of pressure, which, however, may also apply to other, quite good players,” says one of the interviewed bankers.

This complete withdrawal from the market of unscrupulous owners may not be realized, argue lawyers. “It may happen that will change only the nominal holder of securities”, — said Farid Babayev.