Media: Kremlin has chosen a new bank to serve the Russian military sector

Citing two sources in the government's financial and economic sectors, as well as two financiers familiar with the situation, Kommersant newspaper reports that a special credit organization will be formed as part of Promsvyazbank to work with Armed Services Procurement operations and large state contracts.

On Thursday, January 18, the Ministry of Finance officially confirmed information that has appeared in the media that a special bank would be created in Russia for the needs of the defense industry complex. Additionally, the bank will conduct settlements with and lend to defense enterprises.

The Ministry of Finance did not name which bank would be the main support for the defense industry, but noted that "the new bank will be optimally fit [for this role] in terms of its size, extensive branch network and a number of other characteristics."

According to Kommersant, the government has chosen Promsvyazbank as the main bank. "The stages are as follows: first, the Central Bank will close any holes in Promsvyazbank, then determine what capital is needed for the bank to implement its new goals. Then the legal transfer of the credit organization to the Treasury will take place," the newspaper quoted its source in the financial and economic sector of the government as saying. The newspaper’s sources expect that the transfer of the bank to its new owner will be completed by the end of the first quarter.

The previous main contender for the role of supporting bank for Armed Services Procurement was Globex, which belongs to Vnesheconombank. Vnesheconombank ranks 55th in terms of assets in Russia (according to estimates); Promsvyazbank ranks 10th.

The need for a defense bank emerged after the expansion of US sanctions. Russian banks that work with the defense industry are at risk of falling under sanctions. Alfa-Bank has already notified Russian defense enterprises of its refusal to work with them due to risk of Western sanctions. The Central Bank has completely removed from its website the list of credit organizations that admit to working with Armed Services Procurement.

The Central Bank placed Promsvyazbank under rehabilitation through the Banking Sector Consolidation Fund on December 15, 2017. The bank, according to preliminary estimates, requires an additional 200 billion rubles in reserves. It later became known that the bank’s interim administration asked the Prosecutor's Office to open a case over transactions with Promsvyazbank's securities. The bank is being rehabilitated according to an accelerated scheme; on January 12, the Central Bank decided to reduce the bank's capital to 1 ruble, as a result of which the bank's shareholders' shares were diluted.
The former owners of the bank, brothers Alexei and Dmitry Ananyev, left Russia for an extended period of time; on January 15, Alexei Ananyev returned.

  Sanctions on Russia, Russia, Russian banks