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UPDATE 1-Russia's B&N Bank to write off some junior debt owned by shareholders
October 4, 2017 / 2:41 PM / 2 months ago

UPDATE 1-Russia's B&N Bank to write off some junior debt owned by shareholders

(Adds detail, analyst comment, background)

MOSCOW, Oct 4 (Reuters) - Russia’s B&N Bank, which is being rescued by the central bank, said on Wednesday it will write off subordinated debt worth $226.56 million owed to its shareholders.

B&N - the second bank to be rescued by the central bank in less than a month after Otkritie - does not have publicly traded subordinated debt in issue, unlike Otkritie where some of the junior debt will be written off during the bail out.

The write-off announcement had no immediate impact on the market as B&N, which was Russia’s 12th biggest lender by assets before the central bank said it would bail it out, has no subordinated bonds in circulation.

The write-off, however, is yet another reminder that Russian banks, private ones in particular, are under close scrutiny as in less than a month the central bank has taken over two such lenders, Otkritie, once Russia’s largest private bank, and B&N.

“Right now there is a bit of fear within the sector for private banks,” said Nish Popat, senior portfolio manager at investment management firm Neuberger Berman.

“If there is a squeeze on liquidity you could see a shift where stronger banks get stronger. Private banks may pay you a higher coupon but in the present circumstances people may feel safer with the big state-owned ones,” Popat said.

“But we need to put this into context. Otkritie and B&N Bank are 4-5 percent of the Russian banking sector,” he said.

In early September the price of subordinated bonds issued by Otkritie hit all-time lows after a central bank deputy governor told Reuters some holders of this debt stood to lose their money in a bailout of the private lender.

Subordinated debt is unsecured and stands last in the queue to be repaid in the event of a liquidation. Some other private Russian banks recently decided to buy out some of their subordinated debt from the market.

Central Bank Governor Elvira Nabiullina said last week Russia’s banks carried bad loans of 5.3 trillion roubles ($92 billion), which accounted for less than 10 percent of outstanding loans.

She said around 70 percent of bad loans were covered by provisions and posed no concerns for the banking system in general.

In the case of B&N the write-off procedure was initiated by a drop in B&N Bank’s base capital adequacy ratio, the lender said in a statement on Wednesday.

This ratio stood below 5.125 percent of assets for more than six days, which triggered the writing off of subordinated debt that the bank had and which was provided by the bank’s own shareholders, B&N said.

According to the central bank, B&N suffered the decline in the capital ratio between Sept. 19 and Sept. 24. (Reporting by Elena Fabrichnaya and Yelena Orekhova in Moscow and Sujata Rao in London; Writing by Andrey Ostroukh; Editing by Greg Mahlich)

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