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Master-Bank puts on hold plastic cards of over hundred banks


Master-bank license termination was announced November 20th in the morning. All the Master-bank offices closed that day, the web-site became unavailable, and ATMs stopped disbursing cash. In particular, payroll customers could neither withdraw their funds, nor pay with their cards. It also affected customers of partner banks – over one hundred all together, out of which seven are foreign banks.

At this point Master-bank is in negotiation for transferring the processing functions over to another bank. The Head of Regional Banks Association, State Duma member Anatoly Aksakov is sure that Central Bank of Russia is interested in having the processing center continue providing services to customers. «There is an agreement with payment systems on rapid transfer of processing functions to other centers. The funds don’t get lost, and can be recovered in the offices. It is important to separate Master-bank cards from cards of other banks that have been serviced through Master-bank processing center. All the problems that non-Master-bank customers have to deal with now should be over by the end of this week», he says.

According to «RIA Rating», as of October 1st the Bank was TOP 41 Russian bank by retail customer accounts totaling RUB 47.376 bln. This license revocation may be the biggest insurance event outstripping the previous record by Pushkino bank, which accounted for RUB 24 billion of retail customer accounts, and totaled RUB 20.2 billion in payments. Many analysts think that Pushkino bank case made State Duma members hold back on increasing the deposit insurance amount from RUB 700.000 to RUB 1.000.000.

Master-bank was third largest bank by ATM network – they had over 3.5 thousand teller machines all over Russia (including partner banks ATMs).

What happened?

The problems started back in 2007. The bank was suspected in being involved in money laundering. Central Bank of Russia has already been considering terminating Master-bank’s license in 2012. According to the Head of CBR Elvira Nabiullina, Central Bank had to go for extreme measures and revoke the license due to progressing problems in the bank. «First of all, the capital was negative. It means that their property and other assets were lower than liabilities before creditors and customers. Our preliminary estimate of the balance gap is at least RUB 2 billion», — says Nabiullina in the meeting with State Duma members. She says that the bank has been misreporting and operating in the shadow economy. «There have been numerous violations of money laundering regulations, and therefore we had to take the extreme measures».

«Master-bank scenario was predictable – CBR has taken the direction toward financial system rehabilitation and elimination of the companies involved in dubious operations. CBR has estimated the balance sheets, and carefully read all the signals, which all brought to making the final decision», — says Anatoly Aksakov. According to him, the direction is taken toward establishing a well-functioning inter-bank lending and credit institutions refinancing. «It is all hard to implement due to the credibility crisis, while this credibility is crucial for the Central Bank to steadily refinance the system»

How to get your money back?

After license revocation the Deposit Insurance Agency posts on its website the information on how, when, and where the customers of a failed bank can apply for reimbursements. DIA has already informed that payments to Master-bank customers will start on December 4th the latest. Before that, DIA holds competitive tenders to select the agent banks to disburse the insured funds through. Reimbursement applications can be filed during the entire bank dissolution period, which in average goes for two years. The insurance covers all the deposits, but can not exceed RUB 700.000 for each of them. If a deposit amount was less than RUB 700.000, not only the insurance will cover it in full, but also reimburse the interest (within the total of RUB 700.000). For foreign currency deposit reimbursements the exchange rate as of the date of license revocation will be used.

The uncovered amount will be paid off in the course of bank dissolution as part of first-priority creditors claim. This means that all the funds above the RUB 700.000 amount are not necessarily lost – in any case it is worth filing an application. But the distress sale may take many years.

It is important to know that deposit insurance only covers retail deposits. As for corporate customers and entrepreneurs – they can only get their money back in the precedence order.

But even in this kind of circumstances there are certain customers who can take an advantage of the bank’s failure. For instance, borrowers are still obligated to pay their debts, but only in amount of the loan principal with no interest accruals. The debt has to paid to the agent bank designated by CBR.

High interest rates are the path to bankruptcy

Master-bank shutdown is not a common case these days, but there are certain signs bank customers need to keep in mind in order to foresee an upcoming bank seizure. First and most important sign is enormously high rates on deposit accounts. «This is basically saying that the bank is badly short of financing, and lacks liquidity, — SDM-Bank Deputy CEO Vyacheslav Andryushkin says. — Although, neither do low interest rates imply a great financial state». High interest rates oftentimes indicate the lack of financing, and for some reason the bank can find no way to get it other than from retail customers. «SOLID MANAGEMENT» Management Company analyst Irina Stupakova notes that low brand awareness is another risk factor that needs to be considered. It is much safer to go with a large well-known bank that offers lower deposit yields.

There is a number of other indicators that reflect the state of bank’s sustainability. One of them is bank’s financial statements that any company CFO better study before opening an account with a bank. Especially considering there is no insurance coverage stipulated for business accounts.

«The ongoing trend for license revocations from financial institutions seems fair enough – the government tries to «sanitize» the weak areas of financial sector prior to the recession of 2014 with the upcoming strike on the real sector. Small regional banks trying to attract customers through higher deposit yields and lower loan interest rates are the weak link in this sense. Therefore it is worth paying most attention to the yields as most intrinsic indicator available to a prudent customer» – says Natalia Samoilova, the Head of Analysis Department of «Golden Hills-Capital АМ».

The disclosed financial statements and bank information is very unlikely to be of any help to any non-professional to grasp the reality. Central Bank mostly focuses on balance sheet structure, as well as on cash operations volumes and transparency, while this data is hardly available to a regular customer. It is probably better to simply do some market analysis and see what average yields and interest rates are. If some bank offers deposit yields that are clearly higher than the market average, it is certainly worth withdrawing funds out of there and finding a better-reliable financial institution.