RCB Bank has embarked on an “orderly winding down” of its Cyprus banking operations, following the announcement a month ago of the transfer of shares held by Russian entities to local stakeholders, and the sale earlier this week of a significant part of its loans’ portfolio to second biggest lender Hellenic Bank.
This marks the end of the Limassol-based bank established in 1995, initially as a Russian lender, which gradually built up a strong local client base, while its credit card services division challenged the banks’-owned clearing house and issuer, picking up a market share of over 10%.
On February 24, RCB announced that VTB Bank sold its 46.3% stake to the bank’s local shareholders and management, in order to protect itself from escalating geopolitical tensions.
This follows downgrades and eventual suspension of VTB Bank’s ratings after international sanctions were imposed on Russian-owned businesses following the war in Ukraine.
Parallel to that, RCB’s shareholder change resulted in major rating agencies downgrading the bank’s issuer credit rating by one notch on March 10 and eventual suspension.
As one of the three systemic lenders in Cyprus, regulatory approval of RCB’s structure change by Europe’s Single Supervisory Mechanism would have taken “at least” 2-3 months, according to banking industry sources.
The inability of a timely ringfencing of the Cyprus-regulated bank resulted in the management to decide to transform RCB Bank Ltd. “into a regulated asset management company, shifting away from banking operations, which will be phased out”.
This process is expected to last several months, during which RCB said it, “will continue to service its existing clients and process all requests for payments or deposit transfers to accounts with other banks, meeting any current obligations.”
From €1.9 bln in deposits earlier this year, this figure has dropped to €1.5 bln due to outflows, mainly to other local banks.
However, this does not seem to have deterred banking authorities, as the outflows were deemed as “manageable” and far less than the daily €100 mln seen prior to the collapse of the Cyprus Cooperative Bank in 2018, that faced a “failing or likely to fail” scenario.
Abundant in liquidity and capital
In an announcement on Thursday, the bank said that “although RCB has been, and remains abundant in liquidity and capital, the ongoing and extremely volatile geopolitical situation requires it to transform and adopt a new strategy – phasing out banking operations, while at the same time ensuring that the best interests of its clients are secured.”
This liquidity was enhanced with the sale on Tuesday of the well collateralised “performing loan portfolio” to Hellenic Bank for €556 mln, helping RCB create an additional liquidity buffer to meet clients’ obligations, as well as sufficient assets for its operations.
The loanbook sale was structured in two tranches, with the first tranche of €292 mln relating to Cypriot exposures, expected to be settled by Hellenic on Thursday.
This seems to satisfy Cyprus authorities that RCB’s 11,000 retail and corporate customers will be safeguarded, while deposits are underwritten by the €100,000 guarantee framework.
As of Thursday, RCB said that “in agreement with the ECB Banking Supervision, (it) will cease from entering into new business with clients with respect to both deposits and/or loans.”
Big Four auditors Deloitte have been mutually appointed by RCB and the ECB Banking Supervision “to control the process of the bank completing its settlements with depositors, ensuring the smooth conclusion of the deposit relationships.”
“Our clients will be notified and requested to transfer their operations and deposits to other banking institutions in the coming months. In the interim period existing clients will be serviced as usual. We will continue to execute payments and transfers on instructions of our clients and enable their transition to other banks, processing card payments and acquiring services.”
In essence, local account holders, small to medium sized enterprises and retailers operating RCB’s POS payment machines will be able to transfer to other local banks where, onboarding processes remain arduous and slow, prompting many to consider electronic money institutions.
Already, 16 of RCB’s staff managing the loans portfolio are moving to Hellenic Bank, while the credit cards services division has been considered a separate entity and will seek a new investor.