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Report: Russian regulator mulls banning state entities from buying banks

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Report: Russian regulator mulls banning state entities from buying banks

Russia's Federal Antimonopoly Service prepared proposals aimed at restricting purchases of banks by state-owned entities, with specific amendments to the existing legislation to be developed further by the regulator with the central bank, Kommersant reported Feb. 5.

Lilia Belyaeva, deputy head of FAS' department for financial markets control, told the newspaper that the regulator wants to restrict the state, municipalities and other affiliated entities from acquiring stakes higher than 25% in local lenders. Transactions carried out as part of bank-bailout procedures, for national security purposes or to ensure availability of banking services in areas deprived of such services could be excluded from the proposed restrictions, the official noted.

In 2017, FAS conducted an analysis of several banking services segments during the period from 2011, which showed that the market share of already large, state-owned banks has been growing, and it has been extremely difficult, "if not entirely impossible," for other market participants to compete with those lenders, Belyaeva noted.

The Russian central bank's deputy head Dmitry Tulin said increased state participation in the banking sector will not result in the deterioration of competition, as state banks compete with each other. Nevertheless, the central bank's head, Elvira Nabiullina, recently expressed support for the competition regulator's initiative, saying the central bank was concerned about a fairly large level of state ownership in the sector and that it intends to sell the recently bailed-out lenders as soon as possible, Kommersant noted.

Three large private Russian banks — Otkritie Financial Corp. Bank, B&N Bank and PAO Promsvyazbank were taken over by the central bank's banking sector consolidation fund in the second half of 2017 as part of their bailouts. The regulator plans to merge Otkritie and B&N Bank and sell the merged lender within the next few years, while Promsvyazbank will be transferred into government ownership to service companies from the Russian defense sector, the newspaper said.

Ekaterina Trofimova, the CEO of ACRA, Russia's national credit rating agency, told S&P Global Market Intelligence that the Russian state is likely to continue its drive to consolidate the financial sector by forcibly taking over failing and noncompliant banks, but once risks subside it will sell down its bank holdings, although lenders taken over by the state are unlikely to be privatized in the next five years.