The authorities came up with a scheme to rid banks of frozen assets

Banks under sanctions will be able to get rid of frozen assets and not spend money on settlements with creditors from "unfriendly" countries, follows from the new bill.To do this, they were offered reorganization according to a special scheme.

Russian banks under sanctions may be able to clear their balance sheets under the new scheme, follows from a bill prepared by the Ministry of Economic Development (RBC has it). The authenticity of the document was confirmed by a federal official. The amendments developed by the authorities to “reduce the negative consequences of unfriendly actions of foreign states” were agreed upon by other ministries and departments, the bill was approved by the government commission on legislative activity and submitted for consideration to the cabinet of ministers, two sources close to the government commission told RBC.

According to the draft law, sanctioned banks will be able to carry out a non-standard reorganization - to form a new legal entity, transfer to it assets frozen due to restrictions, and at the same time liabilities in the form of obligations to foreign creditors. After that, all settlements on debts to non-resident clients will be performed only at the expense of the assets of the new company, that is, frozen ones.

RBC sent inquiries to the Ministry of Economic Development and the Ministry of Finance. The press service of the Bank of RUSSIA told RBC that it is about creating conditions so that banks that find themselves in a difficult situation due to sanctions “could continue their activities without obvious financial assistance from the state.”

What is the essence of the scheme

As noted in the document, the amendments will come into force from the day the law is officially published (after all the procedures for considering the project), but sanctioned banks will be able to reorganize until July 1, 2023. Credit institutions will have the right to allocate a separate legal entity (but not a bank) to transfer assets, property and liabilities from the balance to it. The list of what can be "dumped" as a result of the reorganization must be agreed with the Central Bank. From the text of the bill it follows that it can be:

property that the bank cannot actually dispose of due to the imposed sanctions; obligations to foreign persons from states "unfriendly" to Russia. We are talking about citizens of such countries, companies registered in these jurisdictions, operating there or controlled by structures from "unfriendly" countries.

The value of assets and property transferred to a new legal entity as a result of reorganization cannot be less than the amount of liabilities withdrawn under the same scheme. It will be possible to determine the value of assets with the help of an independent appraiser, however, when calculating the value, the fact that the bank cannot dispose of them due to sanctions should not be taken into account. The frozen assets will be treated as collateral for liabilities to foreigners. From the moment of such reorganization, the bank will have the right not to disclose material facts about its financial and economic activities in the public space.

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The amendments also affect the provision of the Civil Code on the reorganization of legal entities (Article 60 of the Civil Code of the Russian Federation): according to the law, now, during the reorganization of a company or a bank, creditors have the right to demand ahead of schedule the fulfillment of obligations to them. In the event of reorganization of sanctioned credit institutions, their foreign creditors from "unfriendly" countries will lose this opportunity.

What do lawyers think about such a reorganization?

The reorganization of the bank in the form of spinning off a new legal entity is a non-standard way, says Stanislav Klimov, a lawyer at the Asterisk bureau. He notes that usually banks reorganize in the form of a merger or takeover to absorb smaller players, reorganization is also often seen as a bank failure prevention measure.

“The procedure proposed by the authorities is atypical, at least in that it involves the creation of a new legal entity. There is currently no developed regulatory framework for such a mechanism,” agrees Ekaterina Tokareva, partner at the Pen & Paper Bar Association.

Reorganization is a suitable form of a one-time transfer of a large volume of not only heterogeneous assets, but also liabilities, says FBK Legal Senior Partner Alexander Ermolenko: “Reorganization is good and convenient because there is a universal succession, that is, we do not pay additional taxes. It is not always convenient to transfer obligations as a result of direct transactions, sometimes it is necessary to come up with complex schemes, obtain the consent of creditors, and reorganization removes this need - it is enough just to notify creditors.

What will it give banks under sanctions

According to Yermolenko, the scheme proposed by the authorities will make it possible to separate “all the toxic and sanctions part” from the bank’s balance sheet, as well as “clear it legally.”

“Foreign creditors from “unfriendly” countries who want to receive funds will no longer demand them from the bank, but from these legal entities, banks will not be involved either in lawsuits or in arrests. Formally, everything is legal, but the method is extreme,” says the lawyer.

Lenders from "unfriendly" countries who want to receive funds will be forced to overcome the restrictions imposed by the authorities of their states, Klimov notes. “After making a claim against such a company, it may well refer to the fact that it is ready to fulfill the requirements, but the property is frozen, that is, there is some kind of force majeure. In this situation, the creditor has the right to judicially levy execution on this property. And if he succeeds, then the company will lose the asset, but the claim will also be repaid. If the asset is disposed of in any other way, including turning into the property of an “unfriendly” state or a third country, the creditors will be left with nothing,” the lawyer explains.

VTB was the first after the Ministry of Finance to pay off foreign currency debt in rubles

The withdrawal of blocked assets outside the bank’s perimeter will also allow market participants to reduce the potential burden on capital and standards, says Mikhail Doronkin, managing DIRECTOR of the NKR rating agency: “We are talking about actually non-performing assets, for which it will be necessary to create reserves one way or another.”

The proposed mechanism may be aimed at minimizing the cost of banks for reserving after the Central Bank's easing ceases to operate, agrees Yury Belikov, managing director of the validation department of the Expert RA agency. “In such a case, the assets should be repurchased at face value so that banks do not have to record the net cost of their disposal,” he adds.

Now Russian banks may not create additional provisions for restructured loans or impaired securities until the end of this year. The HEAD of the Central Bank, Elvira Nabiullina, has already admitted that this measure can be extended.

The volume of relief for large borrowers reached 50% of the capital stock of banks Finance

Which major banks are facing sanctions

On February 21, Russia recognized the independence of the DPR and LPR, and since February 24, it has been conducting a military operation in Ukraine. Against this background, the authorities of the US, EU, UK imposed tough sanctions against a number of large Russian banks.

In particular, Sberbank, VTB, Alfa-bank, Otkritie, Promsvyazbank, Sovcombank, as well as the state corporation VEB.RF faced the freezing of DOLLAR assets. In the UK, in addition to these banks, the blocking of assets was applied to Gazprombank and MCB. The European Union, in turn, disconnected ten Russian banks, including Sberbank and VTB, from the SWIFT financial messaging system.

Will the new scheme become an alternative to additional capitalization

Experts interviewed by RBC admit that the proposed reorganization of sanctioned banks may take place with the assistance of the state. The separation of a new legal entity assumes that the bank itself will be its owner. “How he will dispose of the shares in the future (if the new company is a joint-stock company) is a question,” Klimov notes.

It is impossible to carry out a reorganization so that there is a full offset of frozen assets with obligations to foreigners, Belikov believes. The analyst provides data on the state of the consolidated balance sheet of banks as of February 1:

In assets:

RUB 1.6 trillion in ruble equivalent - funds of Russian banks on correspondent accounts with credit institutions in Europe and the USA (nostro accounts); RUB 1.1 trillion in ruble terms, these are interbank loans, deposits and other placed funds (including reverse REPO and subords); Uncertain amount of loans provided to non-residents, securities of non-residents (there is no exact data, since there is no detail by jurisdiction in the reporting).

In liabilities:

RUB 115 billion in ruble equivalent on correspondent accounts opened by Russian banks for credit institutions in the USA and Europe (loro accounts); 361 billion rubles in ruble terms — liabilities on interbank loans and other funds attracted from non-resident banks.

Non-residents from sanctions-supporting jurisdictions simply did not place as many funds in Russian banks as they have potentially frozen assets, Belikov states. “This suggests that it is impossible to simply transfer assets and liabilities to non-residents to the formed non-credit organizations and go to zero. There are more assets, so for their redemption at face value, new money is needed, contributed to the capital of the formed legal entities, ”the analyst notes. He does not rule out that the reorganization of sanctioned banks may require partial support and participation of the state.

The head of VTB admitted the need to inject funds into the capital of the bank

“Such a mechanism can indeed be imagined as an alternative to additional capitalization - it will compensate for losses not yet reflected in the financial statements, at the same time, frozen assets will be consolidated and separated from working assets,” concludes Belikov.

The Bank of Russia will start discussing with the government the format and volume of additional capitalization that Russian banks may need in the summer, First Deputy Chairman of the Central Bank Dmitry Tulin said at the end of May. He then emphasized that the regulator was considering options for non-standard capitalization, but did not disclose details.

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