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Germany is looking to sell the local arm of Russia’s VTB Bank to avoid triggering the country’s deposit insurance scheme, Bloomberg reported citing sources.

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The country’s banking watchdog BaFin and the Bundesbank are focused on ensuring that VTB Bank Europe SE can meet the demand for withdrawals of deposits, the sources said.

Currently, VTB Bank’s German arm has enough liquidity to meet the withdrawal demands, they added.

The regulator is closely monitoring VTB’s local arm and is receiving information on cash outflows daily, a BaFin spokeswoman said.

The news comes after the US and its NATO allies bombarded Russia with financial sanctions in response to Moscow’s invasion of Ukraine.

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Notably, the closure of VTB Bank’s European operations could result in a multi-billion-dollar upfront payment, impacting other lenders in Germany.

BaFin, the Bundesbank and deposit insurance entities are actively working to avoid payout by the fund by shrinking VTB’s local arm, the sourced said, adding that they are still prepared for potential closure.

The sanctions have particularly targeted VTB Bank, which has also been excluded from the global payments messaging system SWIFT. 

At the end of September 2021, VTB Bank Europe had €7.95bn in assets, which included €1.64bn cash and short-term funds.

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

Earlier, regulators decided to wind down and sell the European business of Sberbank, Russia’s largest lender.