Dealing with Weak Banks in FinSAC Countries : Progress and Challenges Ahead (English)

Table of Contents

• Abbreviations 7
• Abstract 8
• Preface and acknowledgements 9
• Executive Summary 10
• 1. Introduction 18
• 2. Scope of the paper 20
• 2.1. Regional focus: FinSAC client countries 20
• 2.2. Definition of terms used: weak banks 21
• 2.3. Definition of terms used: viable and non-viable banks 21
• 2.4. Definition of terms used: systemic banking crises 22
• 3. Key financial and regulatory features of FinSAC client countries’ financial systems 26
• 4. Measures undertaken by banks and supervisory authorities to mitigate and overcome distress 34
• 4.1. Recovery planning and execution 34
• 4.2. Early detection and dealing with weak, but viable banks 38
• 4.3. Managing financial stress 40
• 5. Managing banking crises in systemic scenarios 46
• 5.1. Context and explanation 46
• 5.2. What is the true extent of the losses? 47
• 5.3. An independent valuation 51
• 5.4. Loss coverage: who foots the bill? 52
• 5.5. Availability of resolution tools in crisis scenarios 54
• 5.6. The need for public backstops 68
• 5.7. Dealing with asset quality 69
• 5.8. Funding in resolution 75
• 5.9. The need for domestic and cross-border coordination 77
• 6. Recommendations 79
• 7. Main references 81
• Annex 1. Summary of asset management companies in ECA 84
• Annex 2. Key banking failures in ECA 2013-2023 86
• Azerbaijan (FinSAC client) 86
• Bosnia & Herzegovina (FinSAC client) 87
• Serbia (FinSAC client) 88
• Kazakhstan 89
• Kyrgyz Republic 91
• Moldova (FinSAC client) 91
• Montenegro (FinSAC client) 92
• North Macedonia (FinSAC client) 93
• Russia 93
• Tajikistan 96
• Ukraine (FinSAC client) 96
• Annex 3. Bank ownership structures in FinSAC client countries 99
• Figure 1. Number of banks in FinSAC client countries in 202233 26
• Figure 2. Bank ownership in FinSAC client countries by share in total assets35 27
• Figure 3. Aggregated market share by total assets of top-5 banks in FinSAC client countries37 27
• Figure 4. Evolution of bank solvency ratios in FinSAC client countries (2012-2022)41 28
• Figure 5. Evolution of bank return on assets ratios in FinSAC client countries (2012-2022) 28
• Figure 6. Evolution of bank NPL ratios of FinSAC client countries (2012-2022) 29
• Figure 7. Resolution authorities in FinSAC client countries47 30
• Figure 8. FinSAC client countries: recovery options relevance in banks’ recovery plans (RP) 36
• Figure 9. Selected cases of systemwide AQRs & viability assessments108 48
• Figure 10. Stylized burden sharing models for open bank resolution 53
• Figure 11. Stylized burden sharing models for transfer strategies 54
• Figure 12. Selected asset protection schemes/loss sharing agreements in transfer transactions 57
• Figure 13. Investors in transfer transactions: pros and cons 62
• Figure 14. Stylized high-level overview of applying bail-in powers to different creditor classes 66
• Figure 15. Options for dealing with bad assets in bank resolution 70
• Figure 16. Selected asset protection schemes/loss sharing agreements in open bank transactions 71
• Figure 17. Selected Asset Management Companies 84
• Figure 18. Albania 99
• Figure 19. Armenia 100
• Figure 20. Azerbaijan 101
• Figure 21. Bosnia and Herzegovina 102
• Figure 22. Georgia 103
• Figure 23. Kosovo 103
• Figure 24. Moldova 104
• Figure 25. Montenegro 105
• Figure 26. North Macedonia 105
• Figure 27. Serbia 106
• Figure 28. Ukraine 107
• Figure 29. Uzbekistan 110
• Selected systemic banking crisis in Eastern European countries during the last decade7 23
• Resolution strategies and resolution entities in cross-border banking groups in FinSAC client countries 31
• The failure of Sberbank Europe AG subsidiaries55 33
• Foreign ownership in crisis scenarios: pros and cons 37
• Quasi-resolution regimes: the International Bank of Azerbaijan 40
• 2020-2021 Asset Quality Review in Montenegro111 50
• The pitfalls of acquisition by a troubled lender: Kazkommertzbank (KKB) 61
• Bail-in the case of PrivatBank in Ukraine 67
• AMCs in selected countries 73
• Capital controls used by Ukrainian authorities in 2014168 76