On revocation of banking licence from K2 BANK and appointment of provisional administration
By its Order No. OD-2276, dated 31 August 2018, the Bank of Russia revoked the banking licence from the Cherkessk-based credit institution K2 Bank (JSC) (Registration No. 2851) from 31 August 2018. According to financial statements, as of 1 August 2018, the credit institution ranked 349th by assets in the Russian banking system; it was not a socially important lender, and its impact on aggregate indexes of the banking sector of the Karachay-Cherkess Republic was unsubstantial. K2 Bank (JSC) is not a member of the deposit insurance system.
K2 Bank (JSC) was a monoproduct bank with a business model focused on issuing bank guarantees through a narrow network of intermediaries (agents) on non-market conditions which contradicted regular business practices. As of 1 August 2018, the portfolio of guarantees issued by the credit institution totalled 9.5 billion rubles and exceeded its capital more than fivefold. The bank incorrectly recorded expenses for a total of roughly 400 million rubles, associated with payments for intermediary services related to principal engagement, which distorted its financial result. Furthermore, a formal approach to assessment of principals’ business resulted in significant underestimation of credit risks on the issued bank guarantees accepted by K2 Bank (JSC). The compliance with the Bank of Russia’s requirements to remedy the above violations established a substantial loss of the bank’s capital, while its operations were found to have reasons for action to prevent the credit institution’s insolvency (bankruptcy), which created a real threat to its creditors’ interests.
The Bank of Russia had repeatedly (3 times over the last 12 months) applied supervisory measures against K2 Bank (JSC).
Under these circumstances, the Bank of Russia took the decision to revoke the banking licence of K2 Bank (JSC).
The Bank of Russia takes this extreme measure — revocation of the banking licence — because of the credit institution’s failure to comply with federal banking laws and Bank of Russia regulations, due to repeated application within a year of measures envisaged by the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’, considering a real threat to the creditors’ interests.
By its Order No. OD-2277, dated 31 August 2018, the Bank of Russia appointed a provisional administration to K2 Bank (JSC) for the period until the appointment of a receiver pursuant to the Federal Law ‘On Insolvency (Bankruptcy)’ or a liquidator under Article 23.1 of the Federal Law ‘On Banks and Banking Activities’. In accordance with federal laws, the powers of the credit institution’s executive bodies were suspended.
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