Cypriot bank RCB to close its retail business following the war in Ukraine

Cypriot lender RCB Bank plans to close its retail business, making it the first bank to return money to depositors in response to Russia’s invasion of Ukraine, according to four people familiar with internal discussions.

The bank, which was founded in 1995 as a subsidiary of Russian state-owned bank VTB, has long been a preferred lender to the large community of Russian expats living in Cyprus.

Formerly called Russian Commercial Bank, it is effectively disbanding before customer concerns over the war in Ukraine caused it to suffer the same fate as the Austrian branch of Russia’s Sberbank, which was placed in receivership this month- this after being hit by a run on its deposits.

Banks with Russian customers have been hit particularly hard by Western sanctions that limit the size of new deposits Russian nationals can make.

RCB is expected to announce as early as Thursday morning its intention to close its retail operations, according to people familiar with its plans. The bank had €2.8 billion in customer deposits at the end of 2020, including €769 million in retail deposits.

On Tuesday, RCB announced that it had reached an agreement with fellow Cypriot lender Hellenic Bank to sell a €556m portfolio of performing loans for more than €500m. The bank said the transaction would provide it with enough cash to cover all of its debts and “fully meet its obligations to all of its customers”.

Customers will receive their deposits in full or can transfer their accounts to competing banks, according to people familiar with the plans.

After reimbursing its retail depositors, it intends to give up its banking license and reduce its business loan portfolio, the sources added.

The bank declined to comment on its plans for its retail business.

Banks with close ties to Russia have been hardest hit by the West’s sanctions regime targeting the country’s financial sector in response to Moscow’s invasion of Ukraine last month.

Sberbank Europe, a subsidiary of Russia’s biggest lender, collapsed in early March as its European operations were transferred to local rivals or closed.

VTB, Russia’s second-largest bank, has ended its operations in Frankfurt and laid off investment banking staff in London.

The lender, which is majority-owned by the Russian government, had its assets frozen by the UK last month and kicked out of the Swift global transaction messaging system.

VTB gradually sold its stake in RCB, which stood at 46% last month. On February 24, the first day of the Russian invasion, RCB announced that VTB’s stake in the bank had been sold to “Cypriot shareholders of the bank who represent the management”.

The deal increased the stake in the bank of its chief executive, Kirill Zimarin, a former Russian VTB employee who has a Cypriot passport.

Four days later, the bank issued a statement saying, “RCB Bank condemns war and violence in all its forms. We call for a peaceful solution as soon as possible.

The European Central Bank could fine RCB up to 5 million euros for failing to seek central bank approval before finalizing the sale of VTB’s stake in the bank, whose supervisor n was informed only after the transaction was completed, according to people familiar with the matter.

ECB officials have long worried about RCB’s business model and its exposure to Russian interests, prompting them to issue warnings to tighten its money laundering and sanctions controls, a person says informed of the situation.

RCB was at the heart of an opaque network of offshore banking transactions which critics say benefited Kremlin-linked figures, including Russian cellist and businessman Sergei Roldugin, a close friend of President Vladimir Putin.

Leaked documents known as the Panama Papers and published by the International Consortium of Investigative Journalists have revealed that RCB gave Sandalwood Continental, a company linked to Roldugin, more than $800 million in unsecured loans and agreements favorably on exchanges of interest payments from 2008 to 2013.

While central bank supervisors are frustrated at being shunned by RCB, they are also relieved that the outcome of the bank’s withdrawal appears likely to protect depositors and reduce the Cypriot banking system’s exposure to Russia, according to reports. people familiar with their way of thinking.

The ECB declined to comment.

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