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The European Central Bank has taken the rare step of appointing a temporary administrator to oversee the wind-down of RCB Bank, a Cypriot lender with strong Russian ties.
The move was announced on Thursday and means RCB, which was created as a subsidiary of Russia’s state-owned VTB Bank in 1995, will repay its €2.8bn of customer deposits or transfer them to another bank, as first reported by the Financial Times.
Formerly known as Russian Commercial Bank, it has been barred from agreeing new loans, deposits or investments.
In a statement on Thursday, the bank said: “Although RCB has been, and remains abundant in liquidity and capital, the ongoing and extremely volatile geopolitical situation requires it to transform and adopt a new strategy — phasing out banking operations, while at the same time ensuring that the best interests of its clients are secured.”
The lender is in effect winding itself up before customers’ concerns over the war in Ukraine lead to it suffering the same fate as the Austria-based subsidiary of Russia’s Sberbank, which was placed into administration this month after being hit by a run on its deposits.
RCB, which announced the transfer of VTB’s controlling stake to its management on the day of Russia’s invasion of Ukraine, said it planned to transform itself into “a regulated asset management company, given the substantial assets on its balance sheet”.
The war in Ukraine has led to a severing of many financial ties between Europe and Russia, as western sanctions and Moscow’s restrictions on outflows of foreign exchange have created serious problems for cross-border banking.
The “phasing out” of RCB follows last month’s collapse of Sberbank Europe, a subsidiary of Russia’s biggest lender, which was hit by a run on deposits that led to its EU operations being transferred to local rivals or wound down.
Banks with Russian clients have been particularly badly hit by western sanctions that limit the size of new deposits Russian nationals can make. VTB, which is majority-owned by the Russian government, has been subjected to western sanctions and kicked off the Swift global transaction messaging system.
VTB has been winding down its EU operations based in Frankfurt and laying off investment banking staff in London, where its assets were frozen by the UK last month.
“The ECB decided to appoint a temporary administrator to closely monitor RCB Bank’s liquidity position and capital position and to oversee the orderly repayment of its depositors,” the central bank said on Thursday. A team of administrators from Deloitte would “support the orderly implementation of the bank’s voluntary phasing-out plan”, it added.
The ECB also said it had approved a deal RCB announced on Tuesday to sell a €556mn performing portfolio of loans to Cypriot, UK and European clients to its fellow Cypriot lender Hellenic Bank for more than €500mn.
RCB, which had €4.9bn of assets at the end of 2020, said the transaction would enable it “to fully meet its obligations to its clients and retain sufficient liquid assets for further operations after its transformation into an asset management company”.
It said customers would soon be contacted with notices for account closures and those with fixed-term deposits maturing after June would be repaid in full, including interest for the period their money was held by RCB.
ECB officials have long had concerns about RCB’s business model and its exposure to Russian interests, prompting them to issue warnings to tighten up its money laundering and sanctions controls, according to a person briefed on the situation.
Leaked documents known as the Panama Papers that were published by the International Consortium of Investigative Journalists said in 2016 that RCB gave Sandalwood Continental more than $800mn in unsecured loans and sweetheart deals on interest payment swaps from 2008 to 2013.
Sandalwood, a British Virgin Islands company, had links to Russian cellist and businessman Sergei Roldugin, a close friend of President Vladimir Putin, the Panama Papers alleged. RCB denied any links to Roldugin or granting unsecured loans.
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