The Bank of Russia said today it has revoked the licenses of three more lenders due to shady financial activities.

Bank of Russia

Russia’s central bank has revoked the licenses of three banks viz: Investbank, Smolensky bank and Project Finance bank.

Regulatory crackdown

According to Andrey Ostroukh of The Wall Street Journal, Russia is trying to clamp down on the shadow economy and limit capital flight by combating money laundering in the banking system, comprised of nearly a thousand lenders.

Friday’s announcement of the licenses revocation crowns a series of over two dozen bank shutdowns since Elvira Nabiullina took over the chairmanship at the central bank in June this year. Interestingly, earlier this month, the central bank said that the core of Russia’s banking system, which carries out the majority of transactions, was out of danger.

Usually bank shutdowns have a negative impact on the local market. The ruble weakened further in November after Master Bank lost its license. With banks ditching the Russian currency in a bid to sidestep risks related to a deepening purge of the banking system, demand for foreign currencies increased.

Revocation due to non-conformance and misreporting

The central bank indicated the license of Investbank has been revoked over non-conformity with banking legislation and significant misreporting of data. In it press release Bank of Russia indicated in the last two days, Investbank has had visible difficulties in meeting fully its commitments to its clients and investors. The main reason for this is the poor quality of the assets which did not form a sufficient cash flow.

The central bank also indicated that it had established significant inaccuracies in the data reported by Investbank. It added an assessment of the risks undertaken by Investbank and the value of its assets indicates total loss of equity. Bank of Russia further disclosed Investbank has not fulfilled the requirements regarding reserves against possible losses.

Earlier in October, Investbank Russia indicated its managing partner Sergey Mastyugin is a majority shareholder in United Capital Plc, a candidate buyer for Bulgaria’s biggest pension insurance company Doverie. The deal with Austria’s Vienna Insurance Group (VIG), which United Capital has said would be financed by its shareholders, has raised public concern as information about the buyer is scarce.

Closure accentuates counter-party risk

The bank closures had put the counter-party risk among some 900 Russian banks on the spotlight, accentuating negative sentiment on financial markets. Following the recent bank closures, the Russian currency, the ruble, dipped to four-year lows.

Investbank is the 79th largest in Russia by assets, while the other two banned banks, Smolensky bank and Project Finance bank, ranked 125th and 129th respectively. The three banks have combined assets of about 138 billion rubles ($4.2 billion).