BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/40
The process of culling bad banks over the past three years has resulted in roughly 280 financial organizations losing their licences. Some of them were merged with other banks, some restructured and others declared insolvent and wound down. Most of the culled banks have been tiny, but some mid-sized banks have also run into trouble recently.
With a rising backlog of sick banks to deal with, criticism has turned to the agency charged with resolving bank insolvencies, the Deposit Insurance Agency (DIA). As of June 2016, the DIA had 271 insolvency cases still open. Insolvency processes take a long time and case processing has slowed lately. In the first half of 2016, the DIA only managed to finalize the insolvency process for eleven banks. Not only are DIA claim costs up as the condition of sick banks entering receivership is worse than earlier, but Russia’s complex banking insolvency rules and lengthy procedural requirements invite abuse. To make resolution procedures more effective, the CBR has proposed that it would directly oversee resolution of failed banks, but the proposal has received a reserved reception from the DIA and the economy ministry.
Most insolvent banks are covered by the deposit insurance scheme, which guarantees each depositor 100 % coverage on deposits up to 1.4 million rubles (€20,000) for each bank where the depositor has accounts. In 1H16, DIA coverage extended to deposits of 44 banks (218 billion rubles). In 2015, the insurance scheme covered 77 banks and about 435 billion ruble in deposits.
At the beginning of September, Russia had 659 operating banks, the lion’s share of which were still extremely small. The fifty largest bank held nearly 90 % of total banking sector assets at the beginning of September. State-controlled banks held over half of total assets.