Billion-dollar bank error

A Russian state bank appeared to give a $12bn loan to one of Africa’s poorest countries — then claimed the stated payment to the Central African Republic was an accounting error. 

Background

VTB Bank is one of the leading universal banks of Russia. VTB Bank and its subsidiaries form a leading Russian financial group – VTB Group, offering a wide range of banking services and products in Russia, CIS, Europe, Asia, Africa, and the U.S. VTB 24, formerly a subsidiary, was fully integrated into VTB Bank on January 1, 2018.

The main shareholder of VTB is the Russian Government, which owns 60.9% of the lender through its Federal Agency for State Property Management. The remaining shares are split between holders of its Global Depository Receipts and minority shareholders, both individuals and companies.

Russia and the Central African Republic have improved their bilateral relation ever since Russian journalists were killed in CAR earlier in 2018. Russia has sent 145 military trainers, small arms and ammunitions so far.

Analysis

VTB, the Kremlin’s second-largest bank, said that a software error had confused countries with obligations to it and awarded the CAR a non-existent $12bn loan that was instead intended for Cyprus. 

“The accounting forms link the accounts to the countries. The links stopped working and the countries got moved all over the place,” said Dmitry Olyunin, VTB chief financial officer. 

VTB’s initial accounts for the third quarter of 2018 showed the bank was owed Rbs 802 bn ($12bn) in obligations by the CAR — a country whose GDP is only $1.9bn. The surprising disclosure appeared to point to Russia’s growing involvement in Africa and its role in one of the continent’s worst conflicts. 

The CAR has become one of the key entry points for Russia's renewed interest in Africa, beginning in December, when a team of military instructors and 170 “civilian advisers” arrived in Bangui to train the CAR army and presidential guard. Russia has since sent nine weapons shipments to the capital. 

The ties between the two countries have grown deeper, at the expense of former colonial power France. President Faustin-Archange Touadéra’s national security adviser is  a Russian. 

In July, three Russian journalists investigating Moscow's growing role in the country were murdered by unknown assailants’ days after arriving in CAR. The publication that sent them said they were looking into the activities of Evgeny Prigozhin, a Kremlin-connected caterer who independent Russian media claims owns Wagner, the main private military contractor for the Russian army. 

However, bankers in Moscow said the sum was far too large for CAR, which is one of the least developed countries in the world, with a GDP of less than $2bn, according to the World Bank. 

The country is blessed with huge deposits of diamonds, gold and uranium, but few investments have succeeded in a country where 80 per cent of the territory is controlled by more than a dozen rebel groups. 

VTB released an updated version of its accounts in which the CAR debt had been reassigned to Cyprus, where many beneficial owners of Russian companies are registered. Other mysterious “loans” to states like the Vatican and Grenada had also disappeared. 

The CAR denied receiving any money from Russia. 

Assessment

Our assessment is that this may be a genuine banking error but it is difficult to overlook the repeated patterns of such “disappearing” loans from VTB. We believe Russia is be looking to extend its influence beyond Eastern Europe to a resource-rich country with a politically responsive administration. We also feel that this “disappearing” loan may be a means to provide funds to the country despite its controversial human rights record.