International Industrial Bank (IIB), Russia’s ninth-largest bank by Tier 1 capital, has had its licence withdrawn and been taken into administration by the Central Bank of Russia (CBR). Both the corporate lender that formed the bulk of the bank, and its smaller retail banking subsidiary M-Plus, lost their licences. The move came less than three months after the bank had closed a deal with Eurobond holders to extend by one year, the maturity of a $200m bond due in July 2010, to help overcome a severe liquidity squeeze.
IIB was 80% owned by Sergey Pugachev, a senator for the Tyva region in southern Siberia and the majority shareholder of the OPK Industrial group. The bank was caught out by its reliance on wholesale and central bank funding and by its balance sheet concentration, both in lending and in corporate deposits. According to data from thebankerdatabase.com, IIB’s loan-to-deposit ratio rose to 182% by the end of 2009, from 162% in 2008.
The bank does not provide detailed information on the breakdown of its loan portfolio, but an indication of loan concentration can be gleaned from past-due-interest on its books, which jumped from RUB500m ($16.5m) at the end of 2009 to RUB15bn by September 2010. Credit rating analyst Elena Redko at Moody’s says this implies that more than 90% of its loan book had become non-performing in the space of nine months. Moody’s has cut its rating on IIB to C, the lowest level, indicating a likely loss of more than 50% for creditors.
On the deposit side, several major Russian companies are now engaged in litigation to recover money they say they are owed by IIB. Oil company Bashneft won an appeal court ruling in May 2010, which obliged IIB to pay $65m, after the bank allegedly withheld interest payments received on a portfolio of government bonds it was managing for Bashneft under an investment trust. One banker says IIB lost around a quarter of its corporate deposit base in the weeks after this judgement.
CBR chairman Sergey Ignatiev has indicated that he hopes holders of IIB’s 2011 and 2013 Eurobonds, which total $400m, will be repaid. However, a banker familiar with the situation says that two military shipyards owned by OPK, which had been ring-fenced to act as security for the restructured 2011 bond, now appear to have been handed to the CBR as collateral for the RUB32bn repo loans that IIB owed the central bank.
For the full story on what the IIB default means for the Russian banking sector, read The Banker's December 2010 issue, and look out for story online.
