Russia: Central Bank rescues Otkritie to ease contagion concerns

A central bank rescue of Russian bank Otkritie has eased market concerns that other banks could be in trouble, prompting banking stocks to reverse three days of losses. Russia’s central bank stepped in on Tuesday to take at least a 75 per cent stake in Otkritie, the country’s biggest privately-owned bank, to plug a hole in its balance sheet.
The bailout highlights problems among Russia’s banks and the challenge the authorities face in trying to clean up the sector.

But the swift action to rescue Otkritie has gone a long way to reducing the risks of broader contagion, financial analysts said.
“Everyone is breathing a sigh of relief. The panicky mood has been dampened down,” Maxim Ryabov, a trader with Russian brokerage BCS, said.

Russia's central bank said on Tuesday it was bailing out Otkritie bank, one of the country's largest private lenders, after Otkritie suffered a huge outflow of funds amid worries about the quality of its loan portfolio. In the meantime, Otkritie and its businesses would operate as usual, it said. "I want to underline that the bank's shareholders have turned to the central bank themselves", the note reported.

The statement did not describe the extent of Otkritie's debts, however, the bank had been teetering on the verge of collapse for months. The bank has tottered toward collapse in recent months, following a surprise downgrade that prompted a massive deposit outflow of $7.4 billion in June and July, almost a quarter of its total deposits.

The central bank said Otkritie's owners and executives had agreed to cooperate to help restore the lender's balance sheet. It revoked the licence of Yugra Bank, a top 20 lender, last month after saying it had falsified its accounts.