EXCLUSIVE: Regulators prepare for possible closure of Russia’s VTB Bank in Europe

An employee poses for a photo while viewing a payment card at a branch of VTB Bank in Moscow, Russia, May 30, 2019. REUTERS / Evgenia Novozhenina / File Photo

FRANKFURT (Reuters) – Regulators are preparing for a possible shutdown of the European arm of Russia’s second-largest bank, VTB Bank. (VTBR.MM)Amid growing concerns about the impact of Western sanctions on the bank in the wake of the invasion of Ukraine, according to two sources familiar with the matter.

A person familiar with the situation said VTB Bank’s European operations could be shut down within days by regulators in Germany, where it operates mainly on the continent.

The second source said Baffin, the German regulator, was on “high alert” and was monitoring the situation closely and ready to act if necessary although no final decision had been made.

VTB did not respond to a request for comment.

On its German website, VTB informs its clients that their funds are safe and that the economic situation at the bank is “stable”.

The Russian Finance Ministry in Moscow and embassy officials in Berlin did not immediately respond to requests for comment.

BaFin declined to comment.

A spokesman for the Bundesbank, which shares responsibility for banking supervision, declined to comment on a particular bank when asked about Russian banks in Germany but said it was in close contact with BaFin in this regard. “If necessary, we will take appropriate measures,” the spokesman added.

If regulators decide to shut down VTB in Europe, it would be the second failure of a major Russian bank in the region as sanctions from the West put pressure on the country’s lenders. Most of the European operations of Sberbank, Russia’s largest bank, closed earlier this week. Read more

VTB, which has more than 4 billion euros in deposits in Europe, and especially in Germany, will be covered by the Berlin Deposit Protection Scheme, which protects savers up to 100,000 euros.

BaFin said that VTB would not be accepting new clients and that existing account holders were able to access their funds.

A source familiar with the situation said that supervisors have been monitoring the flow of deposits since Russia invaded Ukraine. The person added that the sanctions made it difficult for the bank to recapitalize to meet the demands.

VTB has become one of the main targets of economic sanctions against Moscow in recent days following the Russian invasion of Ukraine. Read more

On Wednesday, it was removed from the SWIFT messaging system that supports global transactions.

It came on the heels of US sanctions last week that effectively expelled the bank from the US financial system, banned trade with Americans and froze its US assets.

An EU official, who asked not to be named, said VTB was in a similar situation to Sberbank because both were subject to sanctions and their reputation in Europe was damaged.

VTB had nearly €8 billion in assets in Europe, according to the latest quarterly data. Its European clients include 600 companies, 150 financial institutions from Russia and 160,000 private clients, according to its website.

In recent years, ordinary Germans and local governments withheld their money with VTB in part because it was one of the few banks that did not charge negative interest rates.

Additional reporting by Frank Sebelt in Frankfurt and Jan Stropchevsky in Brussels. Editing by Baritush Bansal and Edward Tobin

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