Leader of the pack: Kazakhstan's Kazkommertsbank topped The Banker's Top 75 CIS Banks ranking
High capital ratios and a huge pre-emptive increase in provisioning help explain why the dire predictions for CIS banks at the start of 2009 proved unfounded. Writer Philip Alexander
Two of last year's top four banks in the Commonwealth of Independent States (CIS) rankings have disappeared from this year's rankings. Kazakhstan's BTA Bank and Alliance Bank plunged into negative equity in 2008, taking the country's total share of Tier 1 capital in the CIS (excluding Russia) down to 31.7% from 47.2%. Ukraine overtakes Kazakhstan as the largest market by bank capital. Another bank on this list, Ukrprombank of Ukraine, was liquidated in 2009, but remains in this year's ranking, which is based on end-2008 results.
But when this ranking last appeared a year ago, there were expectations of far more casualties than have actually materialised. Government intervention is part of the reason for the relative stability of the rankings - Nadra Bank, ranked at 23, was placed in special administration by the National Bank of Ukraine in early 2009, and is awaiting recapitalisation by the government. The fastest riser in the list, Oschadbank of Ukraine, which jumps 28 places to second, is a state-owned bank that has seen its capital more that tripled to act as a government tool for funding major Ukrainian companies - most notably monopoly gas importer Naftogaz.
Resisting the downturn
However, despite the economic slowdown (and severe contractions in countries such as Ukraine or Armenia), the reality is that bank balance sheets have survived the crisis. The two Kazakh giants that fell were both victims of extraordinary circumstances - alleged frauds leading to non-performing loan (NPL) rates of about 70% - rather than a generalised economic downturn.
In many CIS countries, NPLs have risen, with Ukraine and Kazakhstan suffering particularly sharp spikes. But these rankings make clear that many banks had already prepared for the worst by the end of 2008, making them resilient to the turmoil of the past 18 months. The total Tier 1 capital of the Top 75 fell by about $12bn, to $194bn, but the two missing Kazakh banks account for almost half of this. The average capital adequacy level for the banks in this ranking, using the Bank for International Settlements (BIS) definition, rose by 16.7% in this year's rankings, as banks reined in asset growth.
More striking still, provisioning for loan losses soared even before the full effects of the liquidity squeeze hit the region's economies. Average provisioning for the Top 75 rose by a staggering 236%. Most of the top 10 increases, four of which were more than 1000%, occurred in the three largest banking sectors, Ukraine, Kazakhstan and Belarus. The first two were also the most leveraged sectors in the region. The other country that recorded high provisioning increases was Georgia, where the conflict with Russia coincided with the global downturn to create a particularly troubled year for banks in 2008.
Even if these banks were provisioning ahead of expected losses, then their results may already begin to show improvement in next year's rankings - the rise in NPLs levelled off in Ukraine and Kazakhstan in the final quarter of 2009. But 2010 is likely to be the year of real recovery, when banks can begin writing back some of the provisions they made in 2008.
In the meantime, the prospects for Belarus catch the eye, as better provision of data to The Banker rankings enables a clearer picture of the country's banking sector to emerge. Provisioning was high in 2008, and the economic contraction in 2009 was heavy, at 5.5%. But profitability in 2008 was good, with five of the top 10 profit increases in these rankings coming from Belarus. State-owned banks such as Belpromstroibank (BPS) are looking to modernise and find foreign investors - Russia's Sberbank bought BPS in late 2009 - while privately owned banks such as Raiffeisen's Priorbank or Minsk Transit Bank are benefiting from a take-off in the retail lending segment.
Top 10 provisions for loan losses, year-end Dec 31, 2008
Top 10 highest bis ratios, year-end Dec 31, 2008
Top 10 profit increases, year-end Dec 31, 2008
Tier 1 capital by country, 2008 (%), (Total = $22.5bn)
Assets by country, 2008 (%), (Total = $194bn)
