Russia’s Mosoblbank “most likely” had unit for cooking the books

By Andrei Skvarsky.

Mosoblbank, Russia’s 83rd largest bank by assets, “most likely” had a division whose job was to cook the books in a bid to bypass regulatory restrictions slapped on the distressed lender with the aim of stopping it from going to the wall, a central bank deputy governor said.

The supposed unit of Mosoblbank, a Moscow-based firm the central bank has recently decided to bail out, “falsified accounts and documents on transfers by clients and forged their signatures” before they were seen by auditors, Mikhail Sukhov told Moscow daily Kommersant.

This enabled the lender to accept more deposits than the central bank’s 2011 restrictions allowed it to.

“Many clients behaved rather unusually: on the day of making a deposit they would acquire securities via the bank or make other forms of investment,” Sukhov said, citing audits.

“Apparently, at the end of a business day, many of the clients had some money written off their accounts, and the bank’s reports recorded a symbolic sum, for example 1,000 rubles or 100 rubles [$30 or $3],” he said.

“The money that was written off went over under the control of the managers or owners of the bank, who invested it in property or business operations that formally had nothing to do with the bank.”

Mosoblbank’s management was apparently aware how much it owed the clientele and tried to meet their commitments because the central bank received no complaints, the deputy governor said.

The alleged scheme did not result in any criminal action or de-licensing, though. Early this year the central bank urged Mosoblbank to audit itself and warned it “would take measures to protect creditors and clients” if the lender did not desist from its falsifications, Sukhov said.

As a result, Mosoblbank came up with reports showing it had failed to declare deposits to a total of 76bn rubles ($2.2bn).

The regulator opted to bail out the bank rather than striking it off.

“Banks with deposits of nearly 100bn rubles [$3bn] … attract serious attention not only from their creditors but from society in general because indirect effects of their insolvency are difficult to predict,” Sukhov explained.

“It is one of those cases where it’s cheaper to make an investment and avoid erosion of confidence in the banking sector than watch consequences of financial losses sustained by several hundred creditors.”

The rehabilitation of Mosoblbank and two other lenders was entrusted to SMP, one of Russia’s banks hit by US sanctions in April as retribution for Russia’s annexation of Crimea. The rescue plan is intended as a lifeline for SMP, which has been promised loans for the purpose, according to Reuters.

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