The end, and the beginning of a new era for RCB

By Yiannis Seitanides

RCB Bank’s coordinated exit from the financial markets has entered the final stretch, with the supervisory authorities in Nicosia and Frankfurt managing a situation that could have developed differently.

Depositors will receive their money and RCB will at the end of the process hand over its banking licence and become an asset management company which will retain the remaining assets (real estate, loans, bonds and cash). RCB Bank as an AMC will file an application, accompanied by a business plan, to obtain a licence from the Central Bank, which will supervise it.

The exit from the banking market is voluntary, by decision of RCB itself.

According to Central Bank sources, what counted in the decisions was the fact that 67 per cent of the deposits were Cypriot – from holders of Cypriot nationality only – not including clients with dual nationality.

The Central Bank made an effort last month to find a solution without the need for resolution measures and on the other hand the management of RCB did not want to cause a problem in the country.

Besides, in a scenario of non-cooperation it would have lost out. The coordinated exit saves the value of the remaining assets and leaves a significant cash reserve of around €300 million.

The decisions were locked in on Monday evening at the level of the ECB’s Single Supervisory Mechanism. The sale of loans to Hellenic Bank, announced on Tuesday, was the first step to ensure that deposits were covered. The next is the restriction of RCB’s banking operations. It will not be able to accept new deposits, make new loans or make new investments.

The European Central Bank (ECB) clarified in a statement that it has taken decisions to facilitate RCB’s decision to voluntarily phase out its banking operations. The bank’s customers amount to approximately 11,000.

At this stage the depositors are fully secured and will be required to transfer their money to another bank or open an account with another bank in order for the transfer to take place.

In the meantime, RCB accounts will be able to be used to pay salaries and to credit the business accounts of companies using the RCB card payment acceptance system.

RCB said in a statement that ‘during this transformation process, the bank would continue to serve its existing customers and respond to all requests for payments or deposit transfers to accounts with other banks and meet any ongoing obligations (…). The bank will follow a specific timetable and process to complete existing customer relationships.”

Customers will be notified and asked to transfer their operations/deposits to other banking institutions in the coming months while existing customers will be serviced as normal.

The bank will continue to process payments and transfers based on customers’ instructions and allow them to switch to other banks, process card payments and acquiring services.

It will make payments as usual with the same interest date and repay term deposits according to their contractual maturity or the standard notice period (within five business days in case of early termination).

Soon, RCB intends to send notices to its clients for account closures and will simultaneously begin negotiations with clients whose term deposits mature after June 2022 on the terms of early repayment with payment of the full amount of the deposit and interest for the period during which the amount was held by the Bank.

The ECB has decided, in agreement with RCB, to appoint a temporary administrator. Deloitte will closely monitor the bank’s liquidity and capital positions and oversee the coordinated repayment of depositors.

“The temporary administrator will not replace the current board but will instead work with it and support the coordinated implementation of the bank’s voluntary phase-out plan,” the ECB said.

RCB’s decision to leave the banking sector is a result of the outbreak of war in Ukraine. The problem is not so much about the stake held by state-owned Russian bank VTB, which has been sanctioned. Assuming the ECB were to reject the sale of VTB’s stake to the existing shareholders of RCB on the same day, this would not affect the bank’s operation. The shares would be frozen and a new buyer would be sought.

What is affecting RCB Bank is the impact of “geopolitical risks on the bank’s operations following the Russian invasion of Ukraine”, the ECB said.

The outbreak of war in Ukraine had made it extremely difficult for RCB Bank to continue operating as it had until February 24 for three reasons, according to central bank sources:

First, after the invasion, an outflow of deposits began. It was not large but it had to be managed. At the end of 2020, RCB had deposits of €2.8 billion that were reduced to €1.5 billion. A more massive outflow would have put the bank at risk and triggered the Single Resolution Mechanism. In this eventuality, there could be no guarantee that depositors would get their money back.

Second, a large part of RCB’s revenues depended on the Russian market.

Thirdly, the escalation of the war and the imposition of sanctions added uncertainty.

RCB itself commented that “although RCB maintains ample levels of liquidity and capital adequacy, the ongoing and highly volatile geopolitical situation necessitates this transformation and the adoption of a new strategy – a gradual exit from banking operations while safeguarding the interests of its clients (…)”

RCB said it would like to “wholeheartedly thank its clients for the long and mutually beneficial cooperation and regrets that due to the new geopolitical situation, it has decided, in the interest of Cyprus, to take such measures when all its financial indicators were certainly among the best in the country”.