Elvira Nabiullina revealed the truth about the manipulations of Otkritie Bank

In 2015, Otkritie bought up 74% of the issue of Eurobonds Russia-30, after which it manipulated their price and overstated the value on the balance sheet.
FC Otkritie Bank often focused on short-term gains without understanding its actions in the long term, said CBA Chairman Elvira Nabiullina. Among such transactions is the purchase of Eurobonds Russia-30 to participate in foreign exchange repo transactions with the Central Bank, she said.

In general, this operation did not lead to a deterioration in the financial performance of Otkritie, "but seeing the concentration of such securities on the balance sheet of one bank, in 2015 we lowered the limits and raised rates." "But what bothers you and what should be a lesson for the entire banking sector. On the balance sheet of Otkritie these securities stood at an inflated price, which allowed to embellish the financial state of the bank. There was a certain manipulation of their market price, "Nabiullina said.

 In 2015, Otkritie bought up 74% of the issue of Eurobonds "Russia-30" - through reverse repo transactions and due to money from the Central Bank. Prices for these securities due to the crisis fell significantly, and the difference in rates between the CBR's repo and Eurobond yields made it possible to earn well. Then the book value of securities amounted to 832 billion rubles., And the bank's assets grew to 3.3 trillion rubles. According to Nabiullina, such opportunities for individual market players remain, but for the regulator it is important that they do not lead to understatement of capital. Therefore, in cases where almost the full volume of a security is concentrated on the balance sheets of the bank, the Central Bank may require additional reserves to be created. "I ask the banks to take this into account in their actions," Nabiullina said.

According to the Ministry of Finance, as of August 1, Eurobonds Russia-30 are in circulation for $ 10.7 billion.

 The deep cause of problems in Otkritie is a too risky business model based on constant expansion and large-scale risky operations, the CB chairman said. The bank did not pay enough attention to risk management, she stated. Three years ago, before "Otkrotie" became a sanatorium of the "Trust", the situation of the bank roughly corresponded to that of other players, Nabiullina said, and if the rehabilitation of the Trust was the only complex project in the bank, the bank would probably be able to reorganize conduct. Among the risky projects and the purchase of Rosgosstrakh, she said.

Why Otkritie is not Jugra

It is often asked why Jugra had its licence revoked and Otkritie was put under financial revocery, the Central Bank chairman continued. Jugra is not a systemically important bank, and Otkritie is - this is one of the largest banks in the country, she answered. The situation in Otkritie is reflected in many banks, pension funds and insurance organizations. "With all the flaws and riskiness of the business model of Otkritie, it can be cured, repaired, the bank will be able to develop," Nabiullina said.

 Ugra did not have a business model, it follows from her words. "This case is one of the most unpleasant in the series of reviews because of the irresponsible behavior of the owners who created a pocket bank to finance, first of all, their projects," the chairman said. The bank actively, if not aggressively, bypassed the restrictions of the regulator, attracting the funds of investors, she said, noting that the loan portfolio was of poor quality and most of the collateral was framed with signs of overstatement.

"I very much hope that the banks present here understand that the risks to business owners and management must be strictly limited and not try to deceive the regulator through intricate ownership schemes and informal arrangements. The banking business should be exactly banking, not investment," she concluded.