Central Bank withdraws ERB Bank’s license

The Czech Central Bank has withdrawn the license of the small Russian-owned ERB Bank citing poor risk management and violation of exposure rules relating to bond investments. According to Czech Television the decision is legally binding.

ERB Bank in Prague, photo: Google Street View

The Central Banks’ decision comes a fortnight after an announcement that ERB Bank had failed to meet its obligations to depositors and that clients could start claiming compensation from the national insurance scheme. According to Czech Television the bank has over 5,400 clients who are insured to the tune of 3.5 billion crowns. The process of issuing compensation payments was reportedly launched last Thursday.

Financial expert Petr Zámečník says the speed with which the bank’s license was withdrawn is unusual and indicates the gravity of the problems involved. According to Zámečník in similar circumstances the Central Bank would issue a warning and recommend corrective action such as it did in connection with Sberbank which was warned about poor loan risk management. Zámečník told Czech Television ERB might decide to take the matter to court.

The Central Bank however appears to have plenty of arguments to justify its decision, citing major shortcomings in the areas of credit, market and liquidity risk management and lacked the necessary mechanisms to prevent money-laundering or the financing of terrorist activities.

The bank moreover recently acquired bonds from a single Austrian issuer with a nominal value of 60 million euros, under what the Central Bank describes as “entirely non-standard conditions” and far exceeding set limits. The ERB Bank, formerly known as the European-Russian Bank, received a license to operate around the EU in 2008. The bank focussed mainly on financing Czech exports to Russia.