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Recapitalization of 3 Russian lenders credit positive, Moody's says

The recapitalization of Otkritie Financial Corp. Bank, PAO Promsvyazbank and B&N Bank by the Russian central bank is credit positive for the lenders, but they still face challenges to their long-term viability, Moody's said Feb. 21.

The central bank expects to spend over 1 trillion Russian rubles on the recapitalization of the three banks. Otkritie Financial Corp. Bank already received financing worth 456 billion rubles, while Promsvyazbank and B&N Bank will be recapitalized in the first quarter.

The financial support from the regulator will help the lenders meet regulatory capital requirements, while also providing them with sufficient capital buffers to absorb losses and support potential lending growth, the rating agency said.

Regaining the trust of depositors will be key for the lenders, as all of them experienced significant outflows of deposits prior to or following the central bank's intervention, Lev Dorf, assistant vice president at Moody's, said.

Following the outflow of deposits at B&N Bank and Promsvyazbank, the reliance of the two lenders on funding from the central bank increased to around 30% of their total liabilities as of Jan. 1, the rating agency noted.

Another challenge for Otkritie Financial Corp. Bank and B&N Bank, which are set to merge in the next 12 months, will be to re-establish their business models, according to Moody's, which noted that the merged lender will lose a significant chunk of business from the banks' former owners and affiliated parties.

Promsvyazbank, which was selected by the Russian government to become a lender focused on financing the defense sector, is facing the risk of being the target of U.S. sanctions due to its new role, and some nonaffiliated customers could leave the lender over concerns regarding its past financial problems and uncertain future as a special-purpose financial institution for defense sector companies, Moody's said.

As of Feb. 21, US$1 was equivalent to 56.65 Russian rubles.