Russia may inject more money into Promsvyazbank

Russia may inject more money into Promsvyazbank to help the bailed-out lender in its new role serving the country’s defence industry, Deputy Finance Minister Alexei Moiseev told Reuters.

Russia’s central bank took over Promsvyazbank (PSB) last year from main owners Dmitry and Alexei Ananyev in one of a number of bailouts aimed at cleaning up a fragmented banking sector hit by bad loans and Western sanctions.

The authorities then decided to turn PSB into a bank focused on the defence industry, transferring to it loans to the military made by banks such as state-controlled Sberbank and VTB, Russia’s biggest two lenders.

This should help to protect both defence firms and banks should the United States follow through on threats to impose more sanctions.

Russia has already injected 25bn roubles into PSB this year.

“I do not exclude that as more (defence) business is being transferred to PSB along with an increase in lending, we will have to boost its capital more,” Moiseev said. He did not provide any figures, saying that discussions were underway.

His boss, Finance Minister Anton Siluanov, said in February that PSB would receive up to 1 tn roubles in defence sector loans, mainly from Sberbank and VTB.

Information about PSB executives has not been made public, so if new sanctions touch the bank its senior management is not expected to be affected.

The finance ministry, which has been pushing for higher dividends from state entities including Sberbank and VTB, suggested earlier this year that VTB may pay less in dividends as it needs to boost capital to meet global capital rules.

The central bank wants Russian banks to implement so-called Basel III rules, which require lenders to set aside capital as a buffer against possible shocks, to prove their strength.

VTB has increased its capital by 300bn roubles to help meet the rules and plans to amass the remaining 150bn roubles next year, its chief executive Andrey Kostin has said, while also asking for the rules to be relaxed.

Moiseev said the state did not plan to boost VTB’s capital directly, but that the bank would meet Basel III requirements by adjusting its dividend payment ratio.

“The central bank and VTB will calculate how much of the additional capital is needed (to meet Basel III rules) and dividends will be calculated based on that,” Moiseev said.

“The plan is the following: the year will be finished, the (VTB annual) profit calculated and it will be split between the increase of the capital... and dividend payout.”

VTB plans to post a net profit of around 170bn roubles this year.

The bank paid 44% of its net profit in dividends on the last year’s results, or around 45bn roubles in total. It is not clear how the dividend plan might affect minority shareholders, if at all.