Russia’s Bad Bank Should Outlive $27 Billion Clean-Up, CEO Says

(Bloomberg) -- The bad-asset bank created when a group of Russia’s biggest private lenders collapsed sees the twin shocks of plunging oil prices and global economic pain wrought by the coronavirus pandemic as a chance to expand.

“There’s every reason to believe that the amount of problem assets in 2020 will grow significantly,” Bank Trust Chief Executive Officer Mikhail Khabarov said in an interview last week. “Creating a special-situation fund that’s outside of the banking sector would be the right move for the economy, especially because there are bad assets not only at banks, but also at state companies.”

Trust, which was designated to hold 2.1 trillion-ruble ($27 billion) of troubled assets from a record rescue package for three non-state banks in 2017, could become the institution to handle debt problems during the current pandemic and future crises, Khabarov said. He plans to pitch the idea to Trust’s supervisory board, which includes central bank and Finance Ministry officials.

Russia’s government has reserved 1.4 trillion rubles for virus-relief measures and “anti-crisis events,” Prime Minister Mikhail Mishustin said at government meeting by video link with President Vladimir Putin on Wednesday. Fitch Ratings lowered its forecast for Russians banks last week, saying their ratings will depend on state support for the sector.

Measures by the central bank and government intended to limit the growth of bad debt may help but won’t be able to eliminate the problem, Khabarov said.

Tougher social isolation measures announced Sunday are set to hit the economy of world’s biggest energy exporter as oil trades below $30 a barrel. A nationwide lockdown could cause Russia’s economy to shrink by as much as 10% this year, according to forecasts being discussed by the government last month.

“Retail is practically completely paralyzed, and that will quickly translate into the real estate market and employment in that sector,” he said. “Small and medium businesses have never had to deal with these problems, and the state is unlikely to solve them all.”

Trust’s original mandate is set to dissolve in 2023 after salvaging 500 billion rubles, or less than a quarter of the book value of its assets. The target is “more or less realistic,” he said.

S&P Global estimated last year that the volume of bad debt at Russian banks shrank by 16% after the creation of Trust.

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