VTB Group today announced details of the Bank of Moscow financial rehabilitation plan approved earlier by the Central Bank of Russia and by the Deposit Insurance Agency and the effect of this process on the Bank of Moscow and VTB Group.
Yesterday the Central Bank of the Russian Federation and the Audit Chamber of the Russian Federation confirmed that fraudulent lending activities of the previous management in 2010 and earlier have resulted in the need for provisioning of the loan portfolio against potential losses to the extent that prudential ratios of the Bank of Moscow cannot be maintained above minimum levels required by law and Central Bank instructions. This caused the Central Bank to recommend and the Deposit Insurance Agency to agree to a financial rehabilitation plan for Bank of Moscow.
The plan adopted includes:
1) The Deposit Insurance Agency named VTB Pension Administrator and VTB Debt Center as administrators for Bank of Moscow during the financial rehabilitation period. The administrators will acquire minimum 75% of the share capital of Bank of Moscow.
2) The Deposit Insurance Agency grants a 10 year loan of up to RUB 295 billion to Bank of Moscow at a below market interest rate. The proceeds of the loan will be invested into government securities of the Russian Federation. Bank of Moscow is able to book a profit with an economic effect of RUB 150 billion.
3) VTB Group commits to provide Bank of Moscow with additional capital in the amount up to RUB 100 billion by yearend 2012.
These measures allow adequate provisioning to be made against the problem portfolio of Bank of Moscow and maintain strong capital level at Bank of Moscow for future development.
Bank of Moscow will become a fully consolidated subsidiary of VTB Group and will thus enjoy the full support of VTB Group.
The actions above will effectively deal with any potential problems arising from the uncovered fraudulent activities while simultaneously having no negative effect on the financial results of VTB Group and the Group’s capital position will remain strong.
Bank of Moscow 2010 results, VTB Group Q1’11 results and further effects of Bank of Moscow consolidation into VTB Group will be announced by end of July, 2011.