Intellinews – Russia Banking Report

Intellinews – Russia Banking Report The IntelliNews Russia Banking Sector Report offers an extensive summary of the Russian banking sector. It includes a complete coverage of the latest developments, trends and corporate news, accompanied by thorough statistics and comments. This sector report is ideal to keep you abreast on recent company and industry news. Written by local professionals, it is a unique market and business intelligence analysis, tailored to save time by providing in-depth information, while helping you to make confident and informed business decisions.

Executive SummaryIn line with the forecasts of the Central Bank of Russia (CBR), aggregate banking sector profit in 2011 amounted to RUB 848bn in 2011, going up by 48% as compared to RUB 573.4bn seen in 2010. The year was characterized by sharply declining reserves on losses and restructuring of bad loans, growing crediting and stabilization of margins. Lending activity was steadily picking up throughout last year, starting at about 15% y/y growth for the real sector and individuals in January and ending with 26% and 36% y/y growth, respectively, in December. Banking sector assets increased by 23% in 2011, roughly 79% y/y of asset growth last year accounting for lending growth. As opposed to the lending, deposit growth slid down towards the end of the year, starting at 30% y/y growth for individual deposits in January and ending with 21% y/y growth in December. top market research companies

High concentration and influence of state banks remained characteristic of Russia’s banking sector in 2011. Top-5 banks accounted for 50% of aggregate banking assets as of Jan 1 2011 and top-20 for 70%. At the same time all of Russia’s top-5 largest banks in terms of assets are either state controlled or affiliated with state-controlled companies (namely Sberbank, VTB, Gazprombank, state development bank VneshEkonomBank and agricultural bank RosSelkhozBank). Large state-controlled banks enjoy easier access to government subordinated funding and better growth prospects not proportionate to their lion’s share of the banking sector’s assets. For example, in December 2011, Fitch calculated that as of November 2011 state-controlled banks accounted for 85% of funding CBR, FinMin and regional governments provided to the banking sector. At the same time, high concentration of state-controlled banks making the sector vulnerable to external shocks such as commodity price fluctuations is unlikely to change in the nearest future.

On one hand, largest banks have been aggressively acquiring assets throughout 2011, most notable VTB taking over country’s 5th largest bank, Bank of Moscow, and one of top-30 banks TransCreditBank affiliating with Russian Railways. On the other hand, government’s privatization plan that among other things was geared to decreasing the state stakes in main banks to controlling ones and even below had to be postponed due to continuing external financial turmoil. A 10% stake in VTB was indeed sold in the beginning of the year, but a sale of 7% share in Sberbank planned for H2/11 had to be postponed. Moreover, the media war, interventions by various state regulating and law enforcement agencies as well as fraud discovered during and after the takeover of Bank of Moscow point to rather low standards of corporate governance in the sector.