MOSCOW (Reuters) - Russia’s B&N Bank, the country’s 12th biggest lender by assets, has sought a bailout from the central bank, just three weeks after another leading Russian bank had to be rescued.

A man walks down the stairs at the Russia's B&N Bank headquarters in central Moscow, Russia September 20, 2017. REUTERS/Grigory Dukor

The central bank confirmed it was in talks with B&N Bank’s owners about the request, with a decision due in the near future, and said it had provided the bank with an emergency cash injection.

There was no immediate sign of contagion and banking sector insiders said that while the problems that triggered the crises at B&N Bank, and previously Otkritie, could hit other lenders, only a few were vulnerable and the risk of a wider crisis small.

B&N Bank, part of a holding company controlled by Russian oligarch Mikhail Gutseriev and his family, is not on the central bank’s list of systemically important lenders. The bank said it had under-estimated problems within the businesses it had bought during an expansion drive.

“Our objective is, with the support of the central bank ... to conduct an effective financial rehabilitation of the bank,” said Mikail Shishkhanov, chairman of B&N Bank, whose assets account for 2 percent of Russia’s banking system, according to ratings agency Fitch.

B&N Bank said in a statement it had initiated talks with the central bank on ways to resolve its problems a year ago.

Russian banks were already under stress from an economic slowdown made worse by Western sanctions. They have seen bad debts rise over the past three years.

The financial health of some worsened after the central bank forced them to make more rigorous provisions for non-performing loans, while margins have tightened due to lower interest rates.

The central bank took over Otkritie, Russia’s largest private lender, last month and said it may need up to $6.9 billion, the biggest ever bailout in the country.

A London-based fund manager, and a senior Russian banker both said it was now clear Otkritie was not a one-off and more banks were liable to fail.

MUTED REACTION

Russia's composite financial sector stock index was little changed .MICEXFNL, underperforming the broader index of Russian stocks, after B&N Bank's bailout news.

The muted response was because the market sees the banking sector’s problems as contained to a few mid-sized private banks which have problems not shared by the wider sector.

“There is no panic selling, no move on the rouble, no problems in interbank lending, everyone knows where the problems are,” a trader at a Russian brokerage said.

Most of the Russian banking sector’s assets are in the hands of state-run banks which are much more solid and not at immediate risk, analysts said.

A source familiar with the discussions between B&N Bank and the central bank, who did not want to be identified, said negotiations were focusing on how much cash the bank’s owners would contribute to the rescue.

There was confusion, though, about the identity of the owners. B&N Bank issued a statement saying that Gutseriev was not a shareholder. It said he handed over his stake to Shishkhanov, who is his nephew, back in 1998.

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Yet the bank’s own list of shareholders, dated last month, says Gutseriev is a co-owner. A spokeswoman for the Gutseriev family holding group, asked about the discrepancy, said she had nothing to add to the statement.

RESCUE FUND

The bailout under discussion would involve the central bank providing B&N Bank with extra capital from a newly-created Banking Sector Consolidation Fund, which is being used to rescue Otkritie. The central bank has not disclosed its size.

Dmitry Polevoy, chief economist at ING Bank in Moscow, said that, based on how the Otkritie rescue has been handled, the central bank would offset money it injects to lenders by selling bonds and by borrowing from the market via deposit auctions.

That gives the central bank a large rescue fund, but if the sums required turn out to be massive, it could fuel inflation.

B&N Bank, founded in 1993, is part of the Gutseriev family’s sprawling business empire that includes oil firms, a property development portfolio and an electronics retailer.

B&N Bank embarked on an expansion drive after 2010, buying several smaller lenders before completing its biggest deal in 2016, a merger with MDM Bank, one of Russia’s largest lenders.

Shishkhanov used to be chief executive of B&N Bank but stepped away from management of the lender earlier this year.

On Wednesday, Shishkhanov said he had decided to take over from Gutseriev as chairman of B&N Bank’s board of directors, saying that problems at the banks it acquired “turned out to be much more serious than we had believed.”