Ad-Hoc Emergency Liquidity
Russia: Otkritie Emergency Liquidity Program, 2017
Announced: August 2017
Purpose
The CBR provided an emergency loan as Otkritie ran out of liquid assets to cover the outflow of deposits and keep the bank operational until the CBR could complete its recapitalization and restructuring.
Key Terms
- Announcement DateAugust 2017
- Operational DateAugust 2017
- Termination DateFebruary 2018
- Legal AuthorityArticle 46 and 75 of the CBR Law
- AdministratorCentral Bank of Russia (CBR)
- Peak AuthorizationNo Information
- Peak OutstandingAugust loan: RUB 330 billion; September deposit: RUB 380 billion
- CollateralNone
- Haircut/RecourseNone
- Interest Rate and FeesAugust loan: 8%; September: 0.5%
- TermAugust: 180 days; September: 3 years
- Part of a PackageOtkritie received other liquidity support through standing CBR facilities along with an emergency deposit in September; in December, Otkritie received a capital injection from the CBR.
- OutcomesAugust loan repaid in two tranches: RUB 150 billion in December 2017 and RUB 180 billion in February 2018, ahead of schedule
- Notable FeaturesUnsecured
In July and August 2017, Otkritie Bank, Russia’s largest privately owned bank, experienced deposit runs related to concerns over Otkritie’s recent acquisitions, including a large, troubled bank and insurance company. The runs prompted Otkritie to heavily rely on the Central Bank of Russia’s (CBR’s) standing fixed-rate repurchase agreement (repo) facility to meet the outflow. By July, Otkritie had RUB 338.1 billion in outstanding repo loans from the CBR. As depositors continued to withdraw funds in August, the CBR provided Otkritie with an unsecured emergency loan of RUB 330 billion while Otkritie continued to borrow from the repo facility. On August 29, 2017, the CBR announced a rescue plan for Otkritie. In the announcement, the CBR pledged to become Otkritie’s main investor using a newly created resolution mechanism wherein the CBR would take at least a 75% equity stake using funds from the Fund for Banking Sector Consolidation, a subsidiary of the CBR. The bank would remain open, but management would be replaced by a provisional administration composed of CBR employees. By September 1, Otkritie had RUB 1.1 trillion in borrowings outstanding with the CBR, including RUB 682 billion from the repo facility, RUB 330 billion from the unsecured emergency loan, and RUB 55 billion in other loans. In September, Otkritie repaid its outstanding repo debt and the CBR placed an additional RUB 380 billion deposit in the bank. In December 2017, the CBR purchased RUB 456.2 billion in newly issued common shares (99.9% of common shares) to cover Otkritie’s capital deficit, allow it to meet regulatory capital adequacy requirements, and extend financial assistance to Otkritie’s related entities. By February 2018, Otkritie repaid the August emergency loan to the CBR. In March 2018, the CBR decided to restructure Otkritie via a merger with B&N—a smaller, bailed-out bank. This case is part of our series on ad hoc emergency liquidity programs and focuses on the unsecured emergency loan in August and the additional deposit in September. The purpose of these measures was to cover the outflow of deposits and keep the company operating until the government could complete its recapitalization and restructuring.
Sources: Bloomberg; World Bank Deposit Insurance Dataset; World Bank Global Financial Development Database.
This case study is about emergency liquidity assistance provided to Bank Otkritie Financial Corporation (Otkritie). For details of the recapitalization of the bank, see Hoffner (2024a); details of the bank’s subsequent restructuring can be found in Hoffner (2024b).
Otkritie Bank was established in 1992 and entered retail banking in 2012. It grew from relative obscurity to become Russia’s largest privately owned bank by 2015 (CBR 2017e; Fitzgeorge-Parker 2017; Seddon 2017a). In its rise, Otkritie capitalized on opportunities to absorb smaller, distressed lenders—an effort partially financed by cheap state funding under Russia’s unconventional resolution framework. This resolution framework, in place between 2006 and 2017, required as the only alternative to bankruptcy, a private investor to take over a distressed bank (Fitzgeorge-Parker 2017). In return, the Central Bank of Russia (CBR) or the Deposit Insurance Agency—with funding from CBR—would extend concessionary long-term loans to the investor or distressed bank (Fitzgeorge-Parker 2017; Karpova and Kruglikova 2018). Several problems emerged from this rehabilitation program. Lacking official oversight, some investors left the acquired banks mismanaged, used the banks’ balance sheets to dispose of toxic assets, and used the proceeds from the rehabilitation loans for additional activities outside the express purpose of recapitalization (Fitzgeorge-Parker 2017; Shvalbe 2018). The program also effectively exempted a large share of the banking sector from basic regulatory requirements. Otkritie Bank was among four private banks, collectively referred to as “Garden Ring banks,” that frequently participated in the program as investors and, in the process, expanded their balance sheets several times over between 2012 and 2016 (Fitzgeorge-Parker 2017).
In 2016, recognizing the flaws in the resolution scheme, CBR Governor Elvira Nabiullina called for a reform of Russia’s financial bankruptcy laws. Those reforms, which the Duma—the lower house of Russia’s parliament—passed in May and which became effective in June 2017, enabled the CBR to directly invest in the equity of banks in resolution (CBR 2017c; Fitzgeorge-Parker 2017; Russian Federation 2017). In July 2017, just as the new resolution scheme came into effect, Otkritie experienced a deposit run after Russian rating agency ACRA rated Otkritie at BBB-, its lowest investment-grade rating—and thus below the acceptable threshold for holding deposits of state entities and pension funds (Novye Izvestiia 2017; Otkritie 2018; Seddon 2017c). In the ratings assignment, ACRA highlighted concerns about its loan book from recent acquisitions, partially funded through the old resolution scheme (ACRA 2017a; Titova 2017).
Resulting from the run, Otkritie lost RUB 611 billionFNPer BIS, USD 1 = RUB 59.14 on August 25, 2017. (USD 10.3 billion) in deposits or 20% of its balance sheet in two months (Seddon 2017d). During the month of August, the CBR provided Otkritie an additional RUB 728 billion in liquidity support through its repurchase agreement (repo) operations and an emergency unsecured credit line (Seddon 2017e). The CBR provided the emergency loan, which amounted to a deposit of RUB 330 billion for 180 days, as Otkritie ran out of liquid assets to cover the outflow of deposits. The exact date and terms of the loan were not publicly released; however, much of the information was later revealed in Otkritie’s filings and leaks to the press. On August 21, 2017, sources close to Otkritie leaked to the newspaper Vedomosti that Otkritie had received an unsecured loan from the CBR; the article noted that CBR hadn’t extended such a loan to any bank since 2010 (Borisyak, Voronova, and Terchenko 2017). Based on Otkritie’s financial statements, the loan carried a roughly 8% interest rate (Otkritie 2018; Soldatskikh 2018). At the end of December, Otkritie repaid RUB 150 billion of the August emergency loan. On February 15, 2018, Otkritie’s CEO announced that it repaid the remaining RUB 180 billion in February (Soldatskikh 2018).
The CBR placed an additional RUB 380 billion emergency deposit in Otkritie in September 2017 (Borisyak 2017b). The new RUB 380 billion deposit had a maturity of 1–3 years with a preferential 0.51% interest rate (Borisyak 2017b; Otkritie 2018). Otkritie repaid the RUB 380 billion September deposit by the end of 2018 (CBR 2019b).
In August 2017, Otkritie also finalized a series of unprofitable acquisitions, absorbing Rosgosstrakh as well as Trust Bank—previously owned by Otkritie’s holding company.FNOtkritie’s plans to acquire Rosgosstrakh became public in December 2016. However, the poor financial condition of Rosgosstrakh cast doubt over whether the deal would eventually close (Pashutinskaya and Bozhko 2017). These acquisitions came on the eve of the CBR’s August 29 announcement that it would rescue Otkritie (Kulikova 2017). CBR Deputy Chair Dmitry Tulin believed that Otkritie’s acquisition of Rosgosstrakh was the ultimate reason for Otkritie’s collapse (Meylanova 2017). When the CBR announced the rescue, both Trust Bank and Rosgosstrakh were included as part of Otkritie’s resolution plan (Meylanova 2017). A Russian news article in September suggested that these transactions likely served to offload toxic assets onto Otkritie’s balance sheet at the expense of the CBR’s eventual rescue, through capital injections (Kulikova 2017).
On August 29, 2017, following a request from Otkritie’s shareholders, the CBR announced the rescue of Otkritie using—for the first time—a newly created resolution mechanism, the Fund for Banking Sector Consolidation (FBSC) (Interfax 2017; Polyakova, Samuseva, and Tatyana 2017). While guaranteeing the continuity of Otkritie’s operations, the CBR replaced management with a provisional administration, almost exclusively composed of CBR employees, to run the bank and conduct an audit of the bank’s financial condition (CBR 2017a; CBR 2017e).
Following the audit, the CBR planned to inject capital, leaving the CBR with at least a 75% stake in Otkritie, as required by the new resolution framework (Russian Federation 2002b, Article 189.49). Though initially stating that creditors would not be bailed in, the CBR decided to bail in subordinated debt holders as a prerequisite for recapitalization after the audit revealed a capital hole that amounted to RUB 188.9 billion by October 1, 2017 (CBR 2017e; Fojcik 2017a; Kalyukov, Titova, and Pashutinskaya 2017; WPS USA 2017). By December 2017, following amendments to the bankruptcy law, Otkritie’s provisional administration wrote off subordinated debts worth RUB 160 billion and wrote down the authorized capital to RUB 1 (Fojcik 2017b).
On December 11, the CBR announced that it had recapitalized Otkritie Bank with RUB 456.2 billion through the purchase of new ordinary shares, amounting to a 99.9% stake (CBR 2017i; CBR 2017j). Of the RUB 456.2 billion, RUB 189.1 billion covered the capital deficit, RUB 182 billion provided additional capital to the bank, and the remainder was allocated for financial assistance to troubled Otkritie subsidiaries, including Rosgosstrakh’s insurance company and nonstate pension funds (CBR 2017i). The CBR injected a further RUB 42.7 billion into Otkritie in June 2018, to be used to extend financial support to various subsidiaries to compensate for the write-downs on claims between the entities (CBR 2018b).
Following Otkritie’s rescue, the CBR also intervened in several other banks: B&N in September 2017; Promsvyazbank in December 2017; Asia-Pacific Bank in April 2018; Moscow Industrial Bank in January 2019; and Vokbank in April 2019 (Interfax 2019). These rescues began with liquidity support to guarantee the continuity of operations, followed by recapitalizations (nationalizations) (CBR 2017g; CBR 2018c; CBR 2019a). In March 2018, the CBR announced the merger of B&N with Otkritie, which finalized on January 1, 2019, following the conversion of B&N’s shares into Otkritie shares (CBR 2018a; CBR 2019a). The CBR also announced the creation of a noncore asset bank (NAB), through a merger of Trust Bank (a subsidiary of Otkritie’s parent company) and Rost Bank (a subsidiary of B&N’s parent company) (CBR 2019a; Interfax 2018; Seddon 2018). The CBR would provide the bad bank with a RUB 1.1 trillion loan at a 0.5% interest rate. The bad bank would recover and liquidate the distressed assets over time, returning to the CBR the funds allocated for resolution (Larina 2019; Seddon 2018).
In July 2019, the CBR completed its bankruptcy prevention measures into Otkritie, with the bank having met its rehabilitation targets. In 2019, Otkritie paid dividends of RUB 2 billion for 2018. Thereafter, the CBR developed a plan to divest from its stake in Otkritie (CBR 2020).
In December 2022, the CBR sold its entire stake in Otkritie to the state-owned VTB Bank for RUB 340 billion. The passage of a new law in March 2022 enabled the CBR to sell shares in Otkritie at the market value, as estimated by independent appraiser AO Business Solutions and Technologies at RUB 328–374 billion. VTB paid RUB 233.1 billion in cash and RUB 106.9 billion in federal government bonds (CBR 2022). Figure 1 shows a timeline of significant events in the CBR’s intervention into Otkritie.
Figure 1: Timeline of Important Events for Otkritie Bank
Source: Author’s analysis.
Ratings analysts at ACRA drew attention to the precarious position of Otkritie in their review on August 21, 2017, and placed Otkritie under a negative ratings review on account of deteriorating liquidity conditions. ACRA notes that while Otkritie possessed a liquidity cushion at the start of August, continued deposit outflow would require support from CBR “as the ultimate creditor” to preserve the bank’s financial stability (ACRA 2017b). On September 6, ACRA changed the review status from negative to developing, following intervention of the CBR (ACRA 2017c). In the report, ACRA highlighted a decreased risk to the bank’s financial stability on account of the CBR’s actions, stating:
Adequate assessment of funding and liquidity reflects intentions of the Bank of Russia to provide necessary financial resources to ensure continuity of the Bank’s business and performance of its obligations to the creditors. In addition, the assessment takes into account substantial amount of funds already provided by the Bank of Russia to support the Bank’s resource base. (ACRA 2017c)
As a result of the CBR’s intervention, Otkritie was able to continue operating without imposing a moratorium on payments. Alexander Danilov, a director at Fitch Ratings, commented on the CBR’s decision not to impose a mortarium on payments, saying that such a decision would adversely affect market confidence and that the CBR instead chose the lesser of two evils (financing deposit outflows through liquidity support) (Lokshina and Ladygin 2017).
On the other hand, Moody’s analysts note the anti-competitive effects of the CBR’s support to Otkritie. To replace the large volume of CBR support to Otkritie toward the end of 2017, Otkritie needed to raise deposit rates to attract private clients. With financial support from the CBR and its status as a quasi-state bank, Otkritie raised its deposit rates, thereby crowding out other private banks and increasing their funding costs (and profitability) (Pashutinskaya and Litov 2018).
Key Design Decisions
Purpose1
In July 2017, Otkritie—Russia’s largest privately owned bank and considered systemically important—experienced large deposit outflows after Russian rating agency ACRA rated Otkritie at its lowest investment-grade rating (BBB-), citing concerns about its loan portfolio from recent acquisitions (Novye Izvestiia 2017; Seddon 2017b; 2017c). According to the bank’s 2017 annual report, Otkritie’s July 2017 credit rating meant that, going forward, Otkritie would be excluded from a number of financial activities: Federal budget funds could no longer be deposited at the bank; insurance funds could no longer invest their funds and capital in Otkritie’s subordinated bonds and deposits; and the rating further limited the placement of pension savings for nonstate pension funds at Otkritie (Otkritie 2018; Seddon 2017c). The rating also meant that Otkritie’s bonds would not be eligible for banks to collateralize loans from the CBR’s standing liquidity facilities (CBR 2017d; Otkritie 2018). In the resulting runs, Otkritie lost RUB 611 billion in deposits (USD 10.4 billion) or 20% of its balance sheet in the two subsequent months (Seddon 2017d). At the time, Otkritie was the largest privately owned bank in Russia, the eighth-largest bank overall, and designated as a systemically important bank—with RUB 2.5 trillion assets and RUB 539 billion of retail savings and deposits (CBR 2017e; Dementyeva et al. 2017; Karpova and Kruglikova 2018).
As of August 1, Otkritie’s debt to the CBR amounted to RUB 338 billion, through the CBR’s fixed-rate repo facility—a standing overnight liquidity facility that comprised the majority of CBR lending operations for 2017 (CBR 2017k; CBR 2017l). By month-end, its debt had tripled to RUB 1.1 trillion, an increase of RUB 728 billion (Borisyak and Eremina 2017; Titova et al. 2017). For context, CBR borrowings across all Russian banks increased RUB 736 billion to RUB 2.1 trillion, meaning that Otkritie accounted for 99% of the increase over the month and over 50% of the total outstanding liabilities to the CBR by the end of August (Titova et al. 2017). See Figure 2 for context.
Figure 2: CBR Lending, December 2014–September 2017 (RUB billions)
Source: Borisyak and Eremina 2017.Of the RUB 1.1 trillion in liquidity support for Otkritie at the end of August 2017, RUB 682 billion was in the form of repos backed by securities and RUB 385 billion in loans—the majority of which had maturities of 91–180 days, according to a ratings analyst at Expert RA, a Russian rating agency (Borisyak and Eremina 2017). These loans included an emergency unsecured loan of RUB 330 billion, reflected on Otkritie’s balance sheet as deposits from the CBR for up to 180 days, identified by the monthly bank reports published by the CBR under form 101 (Lokshina and Ladygin 2017).
The CBR provided the emergency loan as Otkritie ran out of liquid assets to cover the outflow of deposits. The exact date and terms of the loan were not publicly released; however, much of the information was later revealed in Otkritie’s filings and leaks to the press. On August 21, 2017, sources close to Otkritie leaked to the newspaper Vedomosti that Otkritie had received an unsecured loan from the CBR; the article noted that CBR had not extended such a loan to any bank since 2010 (Borisyak, Voronova, and Terchenko 2017).
On August 29, the CBR announced a rescue plan for Otkritie, with an eventual recapitalization. As part of the announcement of Otkritie’s rescue, the CBR pledged financial support to guarantee the continuity of Otkritie’s operations without a moratorium on payments. The CBR also appointed a provisional administration, staffed by CBR employees, to assess Otkritie’s financial condition before recapitalizing the bank (CBR 2017e). The financial audit revealed Otkritie to be negatively capitalized and in December 2017, following amendments to the bankruptcy law, the CBR recapitalized Otkritie with RUB 456.2 billion through a new issue of ordinary shares, amounting to a 99.9% stake (CBR 2017i; CBR 2017j). In the interim, before the recapitalization, the CBR continued providing liquidity support to keep Otkritie operational (Lokshina and Ladygin 2017).
Partly owing to the reduced deposit outflow in September, Otkritie was able to close its outstanding RUB 682 billion in repo transactions with the CBR during that month. However, it maintained the RUB 330 billion emergency loan it had received in August and received an additional RUB 380 billion emergency deposit from the CBR in September. The new RUB 380 billion deposit had a maturity of 1–3 years. As of October 1, Otkritie’s liquid assets covered just 50.9% of funds raised, excluding the funds from the CBR (Borisyak 2017b).
Otkritie repaid RUB 150.4 billion to the CBR in December, leaving RUB 565.3 billion outstanding under the two emergency loans (Borisyak and Ostapenko 2018).
By January 1, 2018, Otkritie had received RUB 380 billion in “short-term” liquidity support from the CBR (CBR 2018c). The CBR provided such liquidity support in the form of deposits using funds from the FBSC, a subdivision of the CBR and newly introduced resolution mechanism (CBR 2019a).
Part of a Package1
On August 29, 2017, following a request from Otkritie’s shareholders amidst a depositor run, the CBR announced that it would inject capital into Otkritie through a newly established CBR subdivision, the FBSC (CBR 2017e). Under this mechanism, the CBR would take at least a 75% equity stake after appointing a provisional administration to assess the bank’s financials (Mokeeva and Popova 2020). On September 15, the CBR approved a plan to recapitalize Otkritie and provide funds to ensure the bank’s liquidity (CBR 2017b). In December 2017, the CBR injected RUB 456.2 billion into Otkritie through an additional issue of ordinary shares, which left the CBR with 99.9% ownership (CBR 2018c). As of November 1, 2017, the aggregate capital of Russian banks amounted to RUB 9.3 trillion, rendering this injection into Otkritie equivalent to almost 5% of the sum (Krivorotova, Mikheeva, and Litov 2017). In June 2018, the CBR injected additional capital into Otkritie, purchasing RUB 42.7 billion in newly issued ordinary shares in Otkritie. Most of the proceeds would be used to provide relief to the subsidiaries Otkritie had purchased in August 2017. RUB 8.9 billion provided additional capital for Otkritie (CBR 2018b).
In 2018, the CBR decided to reorganize Otkritie Bank, along with other large distressed private banks, while continuing to operate it as a going concern. On January 1, 2019, the CBR merged Otkritie and B&N Bank under a newly established universal financial group, Otkritie Group. In 2018, the CBR also established a bad bank, the NAB, which received noncore and toxic assets of banks in which the CBR had intervened (CBR 2019a). The CBR would provide the bad bank with a RUB 1.1 trillion loan at a 0.5% interest rate. The bad bank would recover and liquidate the distressed assets overtime, returning to the CBR the funds allocated for resolution (Larina 2019; Seddon 2018).
On September 1, 2017, the CBR introduced a new, broadly defined emergency liquidity facility for banks that had exhausted all other liquidity sources. The CBR announced the facility on September 4. Eligibility was under the discretion of the CBR, which would consider a bank’s systemic importance and solvency before approving draws. Approved banks could pledge collateral outside of the CBR’s Lombard List (collateral accepted for standard facilities), claims on nonfinancial institutions, and other types of securities. Liquidity could take the form of a repo and/or secured loan, depending on the collateral, and would have a maximum term of 90 days and a rate of 1.75% over the CBR policy rate (CBR 2017f). Research has not determined whether Otkritie used this new emergency facility. The August emergency loan the CBR provided to Otkritie occurred prior to the creation of the facility. In a speech, CBR Governor Nabiullina stated that the August emergency loans were consistent with the new facility (Nabiullina 2017).
Legal Authority1
The CBR’s authority to extend emergency unsecured loans is provided under the 2002 Federal Law on the Central Bank of the Russian Federation (CBR Law). The August emergency loan fell under Article 46 of the CBR Law, which authorizes the CBR to provide liquidity support to banks in various forms, including unsecured loans:
to extend unsecured loans for a term no longer than twelve months to Russian credit institutions that are rated not below the eligible level. The list of the rating agencies whose ratings are used to determine the creditworthiness of the borrowers, the necessary minimum ratings, additional requirements for the borrowers and the procedure for extending the corresponding loans and their terms and conditions shall be drawn up by the Board of Directors. (Russian Federation 2002a, art. 46.1)
On August 29, 2017, the CBR’s board of directors decided to place Otkritie under “rehabilitation” (CBR 2017e). Rehabilitation refers to resolution measures undertaken by the authorities to avoid putting a bank through bankruptcy.
The September liquidity assistance was authorized under Article 75 of the CBR Law, which authorizes the CBR to “extend loans, place deposits and issue guarantees” to banks undergoing rehabilitation measures (Russian Federation 2002a, art. 75).
Administration1
The CBR administered the emergency loans following a decision of the CBR’s board of directors, dictating the terms and conditions thereof (Russian Federation 2002a, art. 46).
Governance1
After the CBR decided to rehabilitate Otkritie, it managed oversight of the loan facility through the FBSC.
Pursuant to Article 76.12 of the CBR Law, the chief auditor of the CBR assesses annually the operational efficiency of the FBSC in performing its goals and ensuring maximum return on investment, in accordance with various international and domestic auditing standards (CBR 2018c). The audit looks to four main areas in assessing the use of funds for the rescue of banks, with Otkritie being the first bank rescued by the FBSC:
- Comparative efficiency of the amount of funds allocated by the Bank of Russia against the amount of damage to the economy in case the scenario of the credit institution’s bankruptcy materialises.
- The optimal resource utilisation for the recovery of credit institution financial position indicators.
- The efficiency of utilisation of funds by the credit institution’s management.
- The efficiency of the sale of shares of the credit institution by the Bank of Russia given the market situation. (CBR 2018c, 109)
Communication1
On August 21, 2017, sources close to Otkritie leaked to the newspaper Vedomosti that Otkritie had received an unsecured loan from the CBR, without detailing the size or terms of the loan (Borisyak, Voronova, and Terchenko 2017). The CBR did not disclose the emergency liquidity assistance it provided to Otkritie until after it announced Otkritie’s rehabilitation on August 29, 2017. On August 30, Deputy CBR Chair Tulin communicated to the press that the loan could not be classified as unsecured but rather as a non-standard refinancing mechanism with market conditions, without detailing the collateral associated with the loan (Vedomosti 2017).
The CBR did not provide specific information as to the pricing of the two emergency loans it provided to Otkritie in August and September. A Kommersant article in February 2018 stated that Otkritie did not comment on the rates it paid on such CBR loans (Soldatskikh 2018).
There was some confusion as to the relationship between the ad hoc loans Otkritie received in August and the new broad-based liquidity facility, which the CBR introduced on September 1. In a speech on September 15, CBR governor Nabiullina answered a question to clarify: 1) Why CBR officials indicated that the CBR had extended loans under the new liquidity framework, prior to the official introduction of the facility and 2) How the CBR intended to disclose such support given the historical disclosure of unsecured lending data on the CBR’s website during the GFC (Nabiullina 2017). Nabiullina responded:
On the urgent liquidity provision scheme, the decision to provide liquidity to Otkritie was made before the decision on the urgent liquidity provision scheme. However, the former was consistent with the pending introduction of the liquidity scheme, first, and, second, it was within the Bank of Russia’s mandate. Yes, data will be disclosed in the routine manner. This is in line with our prior communications. (Nabiullina 2017)
During September, another private bank, B&N Bank (judged by the CBR to not be systemically important) also suffered deposit runs. B&N Bank requested assistance from the CBR, and, on September 20, the CBR announced that it would provide emergency liquidity support to B&N, with no initial mention of a capital injection (CBR 2017g). This resulted in some market confusion and the same day B&N dollar-denominated bond prices fell 30% (Reuters 2017). The following day, on September 21, the CBR issued another press release stating that it would inject capital into B&N, like Otkritie, using the FBSC (CBR 2017h).
Source and Size of Funding1
The CBR provided the emergency liquidity assistance to Otkritie through monetary issuance. In the months following the emergency liquidity provision, the CBR issued central bank bonds to offset the inflationary effects (Sterkin 2017). See Key Design Decision, No. 11, Impact on Monetary Policy Transmission, for more information.
Bank analysts initially estimated the size of the unsecured loan in August to be RUB 54 billion (Borisyak 2017a). The actual size of the loan, as later revealed, amounted to RUB 330 billion (Soldatskikh 2018).
As of November 1, 2017, Otkritie owed the CBR RUB 716 billion (Borisyak and Ostapenko 2017). Of this, RUB 330 billion came in the form of the unsecured August credit line and the rest was from the RUB 380 billion September deposit (Soldatskikh 2018). See Figure 3.
Figure 3: Otkritie’s Outstanding Debt to the CBR (RUB billions)
Source: Eremina 2017.
Rates and Fees1
Otkritie’s 2017 annual report stated that in September the CBR provided Otkritie a RUB 380 billion deposit at a preferential interest rate of 0.51% (Otkritie 2018). According to Fitch, the average cost of Otkritie’s borrowings from the CBR during the fourth quarter of 2017 was 4% (Soldatskikh 2018). Otkritie’s annual report listed a weighted average interest rate of 2.92% on the total of RUB 566.5 billion borrowings from CBR loans (Otkritie 2018).
The RUB 330 billion emergency CBR loan Otkritie received in August represented the only other debt to the CBR during the fourth quarter of 2017. Considering that the September deposit carried a rate of just 0.51%, that implies a roughly 8% interest rate on the August loan, in line with market rates at the time (Soldatskikh 2018).
For context, the CBR’s key rate stood at 9% in August 2017, reduced to 8.5% on September 18, 8.25% on October 30, and 7.75% on December 18 (CBR 2018c). The CBR did not provide specific information as to the pricing of the two emergency loans it provided to Otkritie in August and September.
Loan Duration1
The August loan and September deposits carried maturities of up to 180 days and three years, respectively (Soldatskikh 2018).
In December 2017, Otkritie received a RUB 456.2 billion capital injection from the CBR and an inflow of funds from depositors and corporate clients (RUB 87.9 billion) (Borisyak and Ostapenko 2018; Soldatskikh 2018). As a result, at the end of December Otkritie repaid RUB 150 billion of the August emergency loan. On February 15, 2018, Otkritie’s CEO announced that it repaid the remaining RUB 180 billion in February (Soldatskikh 2018). Otkritie repaid the RUB 380 billion CBR deposit by the end of 2018 (CBR 2019b).
Balance Sheet Protection1
Given the unsecured nature of the loan, there was no mention of collateral.
Impact on Monetary Policy Transmission1
In September, following the increase in CBR lending during August (almost entirely provided to Otkritie), the CBR raised its forecast for surplus liquidity for 2017 from RUB 0.9 trillion–1.4 trillion to 1.4 trillion–1.9 trillion. According to the CBR and other Russian economists, the volume of liquidity assistance would not translate to a commensurate increase in inflation. According to the Alfa Bank chief economist, despite the expansion of the CBR’s balance sheet, at the time, bank lending was minimal, so the outflow of funds from Otkritie would ultimately be redeposited by other banks at the CBR rather than lent out into the economy. The CBR also increased its auctions for CBR coupon bonds (known as coupon-OBR) to offset the excess liquidity, with RUB 150 billion issued in August 2017, maturing in November; the CBR issues OBRs to absorb excess liquidity in the banking system (Sterkin 2017). In 2018, the CBR continued to auction off three-month coupon-OBRs to absorb the excess liquidity, issuing RUB 1.4 trillion during the year compared to the RUB 356.7 billion in 2017 (CBR 2019a).
Other Conditions1
According to a December 2017 news article, the CBR required Otkritie to generate a plan in January 2018 for paying back the outstanding debt to the CBR (Borisyak and Ostapenko 2017).
Key Program Documents
(CBR 2017a) Central Bank of Russia (CBR). 2017a. Bulletin of the Bank of Russia No. 76 (1910). September 5, 2017.
Bulletin discussing the appointment of a provisional administration for Otkritie (in Russian).
(CBR 2017b) Central Bank of Russia (CBR). 2017b. Bulletin of the Bank of Russia No. 82 (1916). September 21, 2017.
Bulletin discussing the CBR’s approval of an initial recapitalization plan for Otkritie (in Russian).
Key Program Documents
(Russian Federation 2017) Russian Federation. 2017. Federal Law on Amendments to Certain Legislative Acts of the Russian Federation. No. 84-FZ. May 1, 2017.
Law introducing a new resolution mechanism (in Russian).
Key Program Documents
(Borisyak 2017a) Borisyak, Daria. 2017a. “400 Billion Rubles for ‘Discovery.’” Vedomosti, September 4, 2017.
Article discussing an estimated figure for the unsecured loan Otkritie received in August 2017 (in Russian).
(Borisyak 2017b) Borisyak, Daria. 2017b. “The Central Bank Did Not Retain Clients.” Vedomosti, October 17, 2017.
Article discussing the continued outflow of funds from Otkritie in September and the CBR’s attempts to halt the outflow (in Russian).
(Borisyak and Eremina 2017) Borisyak, Daria, and Anna Eremina. 2017. “Why Did the CBR Give a Trillion to Otkritie.” Vedomosti, September 19, 2017.
Article discussing the liquidity support provided by the CBR to Otkritie in August 2017 (in Russian).
(Borisyak and Ostapenko 2017) Borisyak, Daria, and Alexander Ostapenko. 2017. “Half a Trillion? Cheers to Your Health!” Vedomosti, December 8, 2017.
Article mentioning the outstanding CBR liquidity support as of November (in Russian).
(Borisyak and Ostapenko 2018) Borisyak, Daria, and Alexander Ostapenko. 2018. “Recipe for 1.5 Trillion.” Vedomosti, February 2, 2018.
Article discussing the return of client funds to Otkritie in December 2017 and the repayment of a portion of loans from the CBR (in Russian).
(Borisyak, Voronova, and Terchenko 2017) Borisyak, Daria, Tatiana Voronova, and Emma Terchenko. 2017. “The Central Bank Makes Discovery after ‘Opening.’” Vedomosti, August 21, 2017.
Article breaking the news that the CBR extended an unsecured loan to Otkritie (in Russian).
(Dementyeva et al. 2017) Dementyeva, Svetlana, Marina Bozhko, Elena Pashutinskaya, and Yulia Titova. 2017. “Conditionally Voluntary Rehabilitation.” Ezhednevnaia Delovaia Gazeta RBK, August 30, 2017.
Article discussing the CBR’s resolution plan for Otkritie (in Russian).
(Eremina 2017) Eremina, Anna. 2017. “Otkritie Is Great Again.” Vedomosti, December 25, 2017.
Article providing a chart of Otkritie’s borrowings from the CBR (in Russian).
(Fitzgeorge-Parker 2017) Fitzgeorge-Parker, Lucy. 2017. “Russian Regulator Backs New Bailout Regime.” Euromoney, November 29, 2017.
Article discussing the development of the CBR’s new resolution mechanism.
(Fojcik 2017a) Fojcik, Beata. 2017a. “Report: Regulator to Write Off Otkritie’s Subordinated Debt.” SNL European Financials Daily, September 28, 2017.
Article discussing the CBR’s plan to bail in Otkritie’s subordinated debt.
(Fojcik 2017b) Fojcik, Beata. 2017b. “Report: B&N, Otkritie Write Off Almost 266B Russian Rubles of Subordinated Debt.” SNL European Financials Daily, December 5, 2017.
Article discussing the bail-in of Otkritie’s subordinated debt.
(Interfax 2017) Interfax. 2017. “Otkritie Shareholders Themselves Requested BSCF Financial Rescue - Tulin.” Interfax: Russia & CIS Business and Financial Newswire, August 29, 2017.
Article discussing how Otkritie’s shareholders requested assistance from the CBR.
(Interfax 2018) Interfax. 2018. “Top News; CBR Approves Plan for Its Participation in Trust Bank, Rost Bank Bailouts.” Interfax: Russia & CIS Banking & Finance Weekly, March 16, 2018.
Article discussing the creation of a bad asset bank.
(Kalyukov, Titova, and Pashutinskaya 2017) Kalyukov, Evgeny, Yulia Titova, and Elena Pashutinskaya. 2017. “The Central Bank Estimated the Scale of ‘Opening.’” Ezhednevnaia Delovaia Gazeta RBK, September 4, 2017.
Article discussing the CBR’s initial assessment of Otkritie’s financial position and capital needs (in Russian).
(Krivorotova, Mikheeva, and Litov 2017) Krivorotova, Anastasia, Anna Mikheeva, and Ekaterina Litov. 2017. “Additional Capitalization with an Open Ending.” Ezhednevnaia Delovaia Gazeta RBK, December 8, 2017.
Article discussing the size of Otkritie’s recapitalization (in Russian).
(Kulikova 2017) Kulikova, Tatyana. 2017. “The State Pays ‘for the Banquet.’” Pravda, September 14, 2017.
Article referencing Otkritie’s acquisitions in August 2017 (in Russian).
(Larina 2019) Larina, Anastasia. 2019. “‘Trust’ That Will Not Burst.” Kommersant, August 15, 2019.
Article discussing the mission of Trust NAB (in Russian).
(Lokshina and Ladygin 2017) Lokshina, Yulia, and Dmitry Ladygin. 2017. “The Central Bank Lent a Trillion to Otkritie.” Kommersant, September 19, 2017.
Article summarizing the CBR’s liquidity assistance to Otkritie (in Russian).
(Meylanova 2017) Meylanova, M. 2017. “Trust Bank, Which Is Being Rehabilitated, Became the Owner of 14.7% of the Shares of Rosgosstrakh, Which Is Subject to Reorganization.” Ekonomika i Zhizn’, September 29, 2017.
Article referencing Otkritie’s acquisitions in August 2017 (in Russian).
(Novye Izvestiia 2017) Novye Izvestiia. 2017. “The Central Bank Announced the Reorganization of the Bank ‘FC Otkritie.’” Novye Izvestiia, August 29, 2017.
News article discussing the CBR’s intervention into Otkritie (in Russian).
(Pashutinskaya and Bozhko 2017) Pashutinskaya, Elena, and Marina Bozhko. 2017. “Bankruptcy Outside the Perimeter.” Ezhednevnaia Delovaia Gazeta RBK, November 23, 2017.
Article referencing Otkritie’s acquisitions in August 2017 (in Russian).
(Pashutinskaya and Litov 2018) Pashutinskaya, Elena, and Ekaterina Litov. 2018. “Complications from Recovery.” RBC, January 29, 2018.
Article discussing Moody’s assessment of complications with CBR lending to Otkritie and other banks (in Russian).
(Polyakova, Samuseva, and Tatyana 2017) Polyakova, Yulia, Svetlana Samuseva, and Grishina Tatyana. 2017. “‘Opening’ of the Rehabilitation Season.” Kommersant, August 30, 2017.
Article discussing runs on Otkritie and the CBR’s intervention (in Russian).
(Reuters 2017) Reuters. 2017. “Russian Bank B&N’s Dollar Bond Falls after It Seeks Bailout.” September 20, 2017.
Article discussing the market reaction to the CBR’s emergency liquidity provision to B&N Bank.
(Seddon 2017a) Seddon, Max. 2017a. “Russia: Inside the Private Bank Backed by the State.” Financial Times, January 3, 2017.
Article summarizing Otkritie’s rise and fall.
(Seddon 2017b) Seddon, Max. 2017b. “Otkritie Founder Retakes Helm after $1.7bn Fall in Deposits.” Financial Times, August 7, 2017.
Article discussing Otkritie’s deposit withdrawals.
(Seddon 2017c) Seddon, Max. 2017c. “Otkritie Sells Stake in Cypriot Bank RCB.” Financial Times, August 24, 2017.
Article discussing deposit runs on Otkritie and asset sales.
(Seddon 2017d) Seddon, Max. 2017d. “Russia Prepares Rescue Package for Otkritie.” Financial Times, August 25, 2017.
Article discussing Otkritie’s distress and the possibility of a state rescue.
(Seddon 2017e) Seddon, Max. 2017e. “Russia’s Banking Woes Mount as State-Run Firms Withdraw Billions.” Financial Times, September 18, 2017.
Article discussing runs on Otkritie following the CBR’s announced intervention.
(Seddon 2018) Seddon, Max. 2018. “Russia Plans ‘Bad Bank’ for $19bn in Toxic Assets.” Financial Times, April 2, 2018.
Article discussing the CBR’s plan to create a bad asset bank.
(Shvalbe 2018) Shvalbe, Andrey. 2018. “Banking Sector Consolidation Fund.” Invest Profit, July 1, 2018.
Article providing an overview of the CBR’s FBSC (in Russian).
(Soldatskikh 2018) Soldatskikh, Vitaly. 2018. “‘FC Otkritie’ Pays for Reorganization.” Kommersant, February 16, 2018.
Article discussing Otkritie’s repayment of the CBR loans it received in August (in Russian).
(Sterkin 2017) Sterkin, Philip. 2017. “Rehabilitation Is Not a Threat to Prices.” Vedomosti, September 25, 2017.
Article discussing the CBR’s operations to minimize the inflationary impacts of emergency lending to Otkritie (in Russian).
(Titova 2017) Titova, Yulia. 2017. “ACRA Did Something Unpleasant to Otkritie.” Ezhednevnaia Delovaia Gazeta RBK, July 5, 2017.
Article discussing ACRA’s ratings coverage of Otkritie (in Russian).
(Titova et al. 2017) Titova, Yulia, Elena Pashutinskaya, Ekaterina Litova, and Anastasia Krivorotova. 2017. “Disappearing Client.” Ezhednevnaia Delovaia Gazeta RBK, September 19, 2017.
Article discussing the liquidity support provided by the CBR to Otkritie in August 2017 (in Russian).
(Vedomosti 2017) Vedomosti. 2017. “The Central Bank Opened Market Consolidation.” August 30, 2017.
Article discussing Otkritie’s collapse (in Russian).
(WPS USA 2017) WPS USA. 2017. “Onexim Group Controlled by Mikhail Prokhorov Filed a Claim against Otkritie Holding to the Arbitration Court of Moscow.” WPS USA, November 24, 2017.
Article discussing challenges related to bailing-in Otkritie’s subordinated creditors.
Key Program Documents
(ACRA 2017a) Analytical Credit Rating Agency (ACRA). 2017a. “ACRA Assigns BBB-(RU) to Bank Otkritie Financial Corporation (Public Joint-Stock Company), Outlook Stable.” Press release, July 3, 2017.
Press release from Russian rating agency discussing an assignment of BBB- for Otkritie.
(ACRA 2017b) Analytical Credit Rating Agency (ACRA). 2017b. “ACRA Assigns the Status of ‘Rating under Revision: Negative’ to Credit Rating of Bank Otkritie Financial Corporation (PJSC).” Press release, August 21, 2017.
Press release from Russian rating agency discussing a review of Otkritie’s credit rating.
(ACRA 2017c) Analytical Credit Rating Agency (ACRA). 2017c. “ACRA Changes the Status of Credit Rating of Bank Otkritie Financial Corporation (PJSC) to ‘Rating under Revision: Developing.’” Press release, September 6, 2017.
Press release from Russian rating agency discussing a ratings change for Otkritie.
(CBR 2017c) Central Bank of Russia (CBR). 2017c. “New Bank Resolution Legislation Becomes Effective.” Press release, June 19, 2017.
Press release discussing the implementation of the new resolution mechanism.
(CBR 2017d) Central Bank of Russia (CBR). 2017d. “On Using Credit Ratings to Compile Bank of Russia Lombard List.” Press release, July 7, 2017.
Press release discussing changes to the CBR’s Lombard List, which sets the terms of eligible collateral at liquidity facilities.
(CBR 2017e) Central Bank of Russia (CBR). 2017e. “On Measures Aimed at Improving Financial Stability of Bank Otkritie Financial Corporation.” Press release, August 29, 2017.
Press release announcing the intervention into Otkritie Bank.
(CBR 2017f) Central Bank of Russia (CBR). 2017f. “On Introduction of Supplementary Mechanism for Liquidity Provision.” Press release, September 4, 2017.
Press release discussing new emergency liquidity facility.
(CBR 2017g) Central Bank of Russia (CBR). 2017g. “On Provision of Liquidity to B&N Bank.” Press release, September 20, 2017.
Press release discussing CBR liquidity assistance to B&N Bank.
(CBR 2017h) Central Bank of Russia (CBR). 2017h. “On Measures Aimed at Improving Financial Stability of PJSC B&N Bank and JSC Rost Bank.” Press release, September 21, 2017.
Press release discussing the rescue of B&N Bank.
(CBR 2017i) Central Bank of Russia (CBR). 2017i. “On Measures Aimed at Improving Financial Stability of Bank Otkritie Financial Corporation.” Press release, December 7, 2017.
Press release discussing the upcoming capital injection into Otkritie.
(CBR 2017j) Central Bank of Russia (CBR). 2017j. “On Acquiring Shares of PJSC Bank Otkritie Financial Corporation.” Press release, December 11, 2017.
Press release discussing the CBR’s capital injection into Otkritie.
(CBR 2018a) Central Bank of Russia (CBR). 2018a. “On Measures Aimed at Improving Financial Stability of PJSC B&N Bank.” Press release, March 6, 2018.
Press release discussing the CBR’s capital injection into B&N Bank.
(CBR 2018b) Central Bank of Russia (CBR). 2018b. “On Recapitalisation of PJSC Bank FC Otkritie.” Press release, June 29, 2018.
Press release discussing the second capital injection into Otkritie.
(CBR 2022) Central Bank of Russia (CBR). 2022. “Bank of Russia and VTB Bank (PJSC) Sign Agreement to Sell Bank Otkritie Financial Corporation (Public Joint-Stock Company).” Press release, December 22, 2022.
Press release discussing the CBR’s sale of Otkritie to VTB Bank.
(Nabiullina 2017) Nabiullina, Elvira. 2017. “Statement by Elvira Nabiullina, Bank of Russia Governor, in Follow-up to Board of Directors Meeting 15 September 2017.” Speech, September 15, 2017.
Speech discussing the CBR’s support to Otkritie and the new liquidity facility.
Key Program Documents
(CBR 2017k) Central Bank of Russia (CBR). 2017k. “Secured Loans of the Bank of Russia.” Accessed July 15, 2017.
Archived webpage discussing the terms and conditions of the CBR’s standing liquidity facilities (in Russian).
(CBR 2017l) Central Bank of Russia (CBR). 2017l. “Monetary Policy Report No. 3.” September 2017.
Quarterly report discussing the CBR’s monetary policy operations.
(CBR 2018c) Central Bank of Russia (CBR). 2018c. Annual Report 2017.
Annual report discussing capital injections into Otkritie and other banks.
(CBR 2019a) Central Bank of Russia (CBR). 2019a. Annual Report 2018.
Annual report discussing capital injections into Otkritie and other banks.
(CBR 2019b) Central Bank of Russia (CBR). 2019b. “Russian Financial Sector: Investor Presentation.” February 2019.
Report discussing the CBR’s progress with resolution measures for Otkritie and other banks.
(CBR 2020) Central Bank of Russia (CBR). 2020. Annual Report 2019.
Annual report discussing status of CBR interventions into Otkritie and other banks.
(Otkritie 2018) Public Joint-Stock Company Bank Otkritie Financial Corporation (Otkritie). 2018. Consolidated Financial Statements for 2017.
Report discussing Otkritie’s financial statements.
Key Program Documents
(Hoffner 2024a) Hoffner, Benjamin. 2024a. “Russia: Otkritie Bank Capital Injection, 2017.” Journal of Financial Crises 6, no. 3: 427–52.
YPFS case study discussing the recapitalization of Otkritie.
(Hoffner 2024b) Hoffner, Benjamin. 2024b. “Russia: Otkritie Bank Restructuring, 2017.” Journal of Financial Crises 6, no. 3: 559–86.
YPFS case study discussing the restructuring and resolution of Otkritie.
(Karpova and Kruglikova 2018) Karpova, Darya P., and Elena V. Kruglikova. 2018. “Modern Instruments of Banking Sector Control and the Effect They Had since Their Implementation in Russian Federation.”
Article discussing bank liquidity management instruments in Russia.
(Kelly et al., forthcoming) Kelly, Steven, Vincient Arnold, Greg Feldberg, and Andrew Metrick. Forthcoming. “Survey of Ad Hoc Emergency Liquidity.” Journal of Financial Crises.
Survey of YPFS case studies examining the provision of ad hoc emergency liquidity.
(Mokeeva and Popova 2020) Mokeeva, Natalia N., and Dariya S. Popova. 2020. “Modern Aspects of Financial Recovery of the Russian Credit Institutions.” Bulletin of Liberal Arts University 2, no. 29: 11–19.
Article discussing the resolution framework in Russia and the FBSC (in Russian).
(Wiggins et al. 2022) Wiggins, Rosalind Z., Sean Fulmer, Greg Feldberg, and Andrew Metrick. 2022. “Broad-Based Emergency Liquidity Programs.” Journal of Financial Crises 4, no. 2: 86–178.
YPFS survey of broad-based emergency liquidity programs.
Taxonomy
Intervention Categories:
- Ad-Hoc Emergency Liquidity
Countries and Regions:
- Russia
Crises:
- Russia Private Banking Crisis 2017