January 31, 2018 / 2:02 PM / a year ago

Russia's Promsvyazbank to be recapitalised using funds spent on troubled banks-sources

* Promsvyazbank to service defence sector

* Finmin to use funds spent on Otkritie, B&N - sources

* PSB to be transferred to the government by April

By Darya Korsunskaya, Oksana Kobzeva and Tatiana Voronova

MOSCOW, Jan 31 (Reuters) - Russia’s Finance Ministry is seeking to recapitalise Promsvyazbank using funds it gets back from the central bank rescue of two other banks, Otkritie and B&N, two sources familiar with the plan told Reuters.

The plan to recapitalise and transfer PSB to government ownership by April was announced earlier this month, with aim of the bank servicing the defence sector.

PSB was itself rescued by the central bank at the end of last year. The central bank estimated at the time that up to 200 billion roubles ($3.6 billion) would be needed to restore the bank’s health.

The fate of such banks has become increasingly in focus as Russia aims to protect its financial system from the risk of a tightening of U.S. sanctions. By having banks such as PSB concentrate on defence sector work, it protects other bigger banks which would not then do the work themselves.

The ministry spent 83 billion roubles on Otkritie and B&N, via OFZ bonds, during the financial crisis of a couple of years ago. After the bailouts, the ministry said it wanted the funds back.

The central bank is now working to overhaul Otkritie and B&N, estimated to cost a combined figure of up to 820 billion roubles and last for around a year. The central bank would like to sell them in the next 3-4 years, considering a public share offering among possible options.

A state official, who declined to be named due to the sensitivity of the matter, said the Finance Ministry was preparing amendments to legislation which would allow to transfer the funds spent by the ministry on Otkritie and B&N to PSB, boosting the capital of the latter.

A banker from a state bank familiar with the discussions confirmed the plan. The both did not say whether all 83 billion roubles the Finance Ministry aims to recover would be spent on PSB.

It was not immediately clear by how much PSB needs to be recapitalised to serve the defence sector in total, or which other tools are planned to be used, apart from OFZs.

Deputy Finance Minister Alexei Moiseev told reporters on Wednesday that the return of funds spent by the ministry on the support of Otkritie and B&N was linked to the process of PSB’s transfer to the government.

“This (the scheme) is in general approved,” he said, adding that the final version of the amendments was expected to be ready on Thursday. He declined to provide other details.

The central bank declined to comment. ($1 = 56.2040 roubles) (Writing by Katya Golubkova; Editing by Alison Williams)

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