In the shadow of the region: what was the reason for the collapse of Tatfondbank

A revocation of Tatfondbank has set a precedent in the banking market and the regulator declined to support the large quasi-public Bank. After more than three months of active negotiations with the government of Tatarstan about saving one of the two largest banks in the region, the Central Bank has gone on extreme measures and revoked his license. The market took this as a signal about the risks of falling confidence in the regional banks.

The Bank of Russia on 3 March, after the revocation of the license of Tatfondbank for the first time revealed details of the negotiations with the government and creditors. As said the first Deputy Chairman of the Central Bank Dmitry Tulin, the regulator may-2016 knew about the dire financial position of Tatfondbank. “Since may of last year, we understood that the situation in the Bank is heavy: his capital was lost, at any moment could lose liquidity,” he explained. According to him, from that moment, the Central Bank was negotiating with the management of the Bank and its shareholders, including the authorities of Tatarstan. “There were assurances that the shareholders will not leave the Bank in trouble, but nevertheless, the outcome of these negotiations proved to be unsatisfactory”, — said the first Deputy Chairman of the Central Bank.

The sudden retreat

Sources familiar with the situation in the Bank, tell that in November of last year, the top management of Tatfondbank suddenly refused to carry out commitments to improve the situation in the Bank, in particular to comply with the Central Bank to establish additional reserves to 40 billion rubles. Later, the Bank recorded a withdrawal of assets from the Bank, which, however, failed to stop after the regulator has appealed to the Prosecutor General.

The Chairman of the Central Bank Olga Polyakova on March 3, reiterated that the withdrawal of assets had taken place. According to her, prior to the introduction of the interim administration in December last year, the size of the “hole” in the Bank’s assets were estimated at 43 billion rubles. the Bank significantly underestimated the credit risk, he the balance was a technical assets. February 1, hole in the capital of Tatfondbank has grown to 97 billion rubles. the Bank’s Rehabilitation, according to the calculations of the regulator, would cost at least 220-230 billion. “Economic feasibility based on the size of hole and subject to the necessary funding, of course, was not” — said the Chairman of the Central Bank.

Failed support

In the process of negotiations about rescue of the Bank discussed the question of its rehabilitation through a bail-in mechanism, envisaging conversion of the debt into equity.

According to the Bank of Russia, to apply bail-in to Tatfondbank had to enlist the support of investors in the amount of at least 60-70 billion rubles, However, consent to participate in the mechanism of bail-in, agreed, in writing only two legal entities, and total liabilities of the Bank before them was only a little more than 5 billion rubles.

Wanting to pursue recovery of Tatfondbank was not enough for several reasons. So, to attract potential investors were given much more pessimistic than the Central Bank, evaluation of the extent of the problems of the Bank. For example, the size of the hole they were estimated at 120 billion rubles. against announced by the Bank of Russia RUB 97 bn.

In this case, the Central Bank and investors agree on one thing: the problems of Tatfondbank are a captive business model, which was focused primarily on the lending business of the ultimate beneficiaries. According to the Central Bank, 65% of the loan portfolio was accounted for by loans associated with the business owner. “This brought the Bank to the deadlock,” — said Polyakov.

New risks

Tatfondbank is the second in the Republic Bank in terms of assets (the first — “AK bars”). In the Russian banking sector, the Bank was ranked the 42nd place. At the end of the third quarter of 2016, the volume of public funds exceeded 76 billion.

A revocation of Tatfondbank will negatively affect the stability of the banking sector of Tatarstan, agree experts interviewed by the international rating agencies Moody’s and Fitch.

Says a banking analyst at Moody’s Maria Malyukova, the consequence would be a decline of customer confidence in banks, since 40% of the shares of Tatfondbank belonged to companies associated with Tatarstan.

According to senior Director Fitch, Alexander Danilov, revocation of license may result in some outflow of funds from the Tatar banks or flows in large Federal banks. “The situation with the revocation of the license of Tatfondbank sensitive to regional banks, adds analyst with Standard & Poor’s Sergey Voronenko. — The Central Bank gives a signal about the need to pay more attention to asset quality and liquidity management”.

Group assets

Concern experts explain the fact that despite the high dependence of Tatfonbank from the region, to support him there was no one. “Tatfondbank has demonstrated the main conclusion that we need to do regions: effective support to local banks they provide is not able,” — said a top Manager of the Bank in the top ten in terms of assets.

The largest shareholder of Tatfondbank is the Republic of Tatarstan, which controls 45% of the capital. The group of Tatfondbank, which, in addition to himself, consists of five banks (Bank “Soviet”, the timer Bank, Tatrabank and Radiotechbank), according to estimates , accounts for 20% of the assets of the region. For comparison, the share of the largest Bank “AK bars” accounted for 46% of the assets of the region, and the share of government agencies of the Republic of Tatarstan and subordinate organizations in the Bank’s capital — about 80%.

The Ghost Of The “Peresvet”

Experts remind that the deterioration of the situation with banks in the region last year was provoked by the situation around the Bank “Peresvet” — it caused a chain reaction on closing of limits for so-called exchange transactions on bonds with a troubled Bank. The consequences of the situation of “Peresvet” is still reflected in the banking sector of Tatarstan.

After the introduction of the interim administration in Tatfondbank in December last year, Fitch has placed on review the rating of “AK Bars”.”This was done to assess how the situation with Tatfondbank can affect the ability and willingness of regional authorities and affiliated agencies to support the “AK bars” — recalled senior Director Fitch, Alexander Danilov.

According to him, “AK bars” is more significant for the authorities of Tatarstan, Tatfondbank than, because of larger market share and social impact. However, Fitch expects evidence of support from shareholders.

Until that happens, the Central Bank rushed to reassure the market. Besides the fact that he called the situation in the banking sector of the Republic controlled, the regulator did not fail to maintain a “verbal interventions” banks in the region, moving away from the traditional practice not to comment on the existing banks. “We analyzed the information attack on the support Bank of the Republic and we understand that, most likely, it was a manifestation of unfair competition,” said Tulin.

In addition, the first Deputy Chairman of the Central Bank announced the intention to support two banks from the group of Tatfondbank. As he explained the decision, “Tatfondbank reorganized credit institution (the”Soviet” and the timer Bank) showed greater stability than the turnaround”.

Captive banks

The banking system of Tatarstan, comprised of 18 banks, characterized by a predominance of groups of banks was concentrated mainly around the region’s largest banks: “AK bars”, “Tatfondbank” and “AVERS”. In all these banks the government has a significant stake or practical control, participating in equity through state-owned the same structure — “Svyazinvestneftekhim”, “Kazanorgsintez” and other. In Tatfondbank, for example, the Tatarstan government directly owns 8.9% stake. A share of 7.5% of it is owned through “Mortgage Agency of the Republic of Tatarstan”, the Ministry of construction, architecture and housing of Tatarstan. Most Tatfondbank, according to the Bank, belongs from 29.85% of the shares Radiotechbank.

The credit system of the Republic of Tatarstan is closely associated with the production and construction projects of the Republic, participating in the financing of oil production, refining, chemical production, engineering, energy, alcoholic beverages, construction and real estate development. Almost every large investment project in Tatarstan, financed with attraction of loans of the largest banks in the country. In this case the project financing of various regional programs loans are issued almost inevitably linked to banks to borrowers.