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The European arm of Russian lender VTB Bank has been put up for sale after being cut off from the parent in the wake Russian invasion of Ukraine, Bloomberg has reported. 

The sale of VTB Bank Europe SE by German regulators is aimed at avoiding the potential collapse of the lender, the sources said adding that the regulators agreed to it on short notice, however, it is not the only option they have for the bank. 

Earlier, a BaFin spokesperson said that the regulators are closely reviewing VTB’s local arm and getting information about the cash outflows daily.

The efforts made by the German authorities including BaFin and the Bundesbank are aimed at avoiding a scenario that could trigger the country’s deposit insurance scheme.

After Russia invaded Ukraine last month, the US and its allies have imposed harsh sanctions to weaken the Russian economy. 

The sanctions, which have already led the authorities to wind down and divest Sberbank’s European units, are complicating the sale of VTB Bank Europe.

The deal is being structured in a manner that would not lead the buyer to violate sanctions imposed on Russia, the sources said, adding that the authorities are also weighing the option to swap Russian and European assets with the parent of the lender.

Sanction hit VTB’s retail banking business in Germany has a customer base of 160,000 and employs 230 in Frankfurt.

VTB Bank Europe has been under pressure to sell individual assets to maintain liquidity, however, the deposit outflows have been lower than expected, the sources noted.

In an event of closure, Germany’s deposit insurance scheme would be forced to make billions of dollars in payment, which could impact the entire banking industry.