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Russian bank head sees bailout costs rising

Russian bank head sees bailout costs rising

Russia: The man in charge of resolving Russia’s largest ever banking failure has warned that the costs of saving top-10 lenders Otkritie and B&N may rise higher than the $27bn budgeted.

Otkritie was Russia’s largest private sector bank by assets until last summer, when its balance sheet shrank by a third in a run on deposits before the central bank stepped in to nationalise it. It is to merge with B&N Bank, a top-10 lender that was nationalised a month later. 

Mikhail Zadornov, Otkritie’s chief executive since January, told the Financial Times that Russia’s central bank may face further costs in addition to the Rbs626bn ($10bn) spent so far on recapitalising Otkritie and B&N and the Rbs1.1tn it is paying to ringfence their bad assets in a “bad bank”. 

“Only in three or four years will we understand how much money in total was invested, how much was returned to the central bank as an investor and how much of it [went] towards closing the holes in the banks’ balance,” Mr Zadornov said in an interview. He added that the costs to the central bank so far were “just estimates” and that he thought the true amounts were not known.

A former finance minister during the Russian financial crisis of 1998, Mr Zadornov left state-run VTB, where he set up well-regarded retail banking arm VTB24, to head up Otkritie and B&N in January.

Both banks expanded their assets rapidly under their previous owners, which borrowed from them at favourable rates.

Mr Zadornov said Otkritie and B&N had returned most of the Rbs1.1tn the central bank lent them to boost liquidity last year, half of it an emergency Rbs500bn bridge loan, and were negotiating with their former owners to secure the surrender of other assets pledged to the bank.