The revocation of banking licenses by the Central Bank of the Russian Federation (CBR) has historically been a relatively rare event on the Russian banking market. Still, it makes up one of the many regulatory arrows the CBR can pull from its quiver when necessary. In addition to insolvency, banking licenses may be revoked on various other grounds, e.g., in the case of serious falsified reporting, performance of unsanctioned banking operations, breach of federal law (on CBR, anti-money laundering, etc.) and in other cases. All grounds are found in Article 20 of Federal Law No. 395-I ‘On Banks and Banking Activities’ of 2 December 1990.
So, from time to time, the revocation of Russian banks’ licenses does indeed take place. In the past, it was often only local banks with relatively small capital that made up the likely candidates, not banks with wider networks of offices. Since such banks held relatively small shares of the overall Russian banking market, the revocation of their license did not have a substantial impact on the market as a whole.
The revocation of Master-Bank’s license on 20 November sent shock waves through Russia’s market. This was one of the largest commercial banks in Russia (among the top 100). To be sure, the Master-Bank bankruptcy will be the largest insurance event in Russian history (a dubious honor previously held by Joint Stock Bank Pushkino). Moreover, it has been quickly followed by the revocation of licenses of a handful of other Russian banks. Are these isolated instances, or do they herald a change in regulatory policy?
Many foreign investors, including international banks and financial institutions, have become clients of or lenders to Russian banks, including local banks. In light of Master-Bank, it is critical for foreign investors to stay abreast of these developments. Each market player should understand what to do in the event of a revocation of their contractual counterparty’s license. Now is the time for creditors to consider their potential exposures and to discuss with their counsel potential action plans should the need arise.
Investors who have claims against Master-Bank or other banks who have lost (or will lose) their licenses will need to present their claims in the relevant insolvency proceeding in accordance with applicable rules. There are indeed special rules on the preparation and filing of such claims and supporting documentation. Investors will be well-served to discuss these requirements with their counsel and determine applicable timing requirements. Investors with sizeable claims are also likely to wish to take an active role in pressing their agenda via credit committees (and where appropriate collaborating with the administrator in maximizing rights, e.g., by avoiding antecedent transactions, pursuing claims of vicarious liability and the like). Russian insolvency rules provide rights here which are not so different than those of other jurisdictions. That said, some recent court cases provide a new insight on the types of claims administrators may be able to make in maximizing debtors’ estates.
We list below those Russian banks which recently lost their licenses. We also observe, news on the street is there may be ‘other candidates…including some from the top 50 Russian banks.1 It is unclear at present whether this is indeed the beginning of a serious purge of the Russian banking market by CBR, or if seven banks’ losing their licenses in a single month is simply an odd statistical coincidence. In any event, foreign investors are prudent to monitor the situation closely.
Should you have any questions or need more detailed advice on the revocation of the license of one of your Russian counterparties, please do not hesitate to contact us.
Click here to view table.