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Asia-PacificDecember 1 2016

Currency depreciation hits CIS economies

Russia’s perilous economic and political situation spelled trouble in the Commonwealth of Independent States region, though there were promising signs in Uzbekistan and Ukraine.
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Steep currency depreciation had a big impact on headline figures for the top 100 banks ranking for the Commonwealth of Independent States (CIS) region in 2016, as low oil prices, Russia’s economic contraction and geopolitical conflict significantly affected exchange rates in several major markets.

Total assets for the region’s top 100 banks fell 20.46% to $176.32bn, while net pre-tax profits totalled just $18m. Tier 1 capital fell 30.52% to $17.61bn in 2015, with aggregate return on capital (ROC) just 0.1%, and return on assets (ROA) 0.01%.

Azeri struggles

It was a particularly tough year for Azerbaijan, which saw its currency, the manat, halve in value against the US dollar. The country has 14 of the region’s top 100 banks, accounting for 8.61% of their assets, which had total pre-tax losses of $621m, the equivalent of a 280% decline in profitability. The banks’ aggregate assets fell by 27.2% – indicating growth in local currency terms – while Tier 1 capital fell by more than half, to $1.195bn. Aggregate ROA and ROC both tipped into negative territory at -4.09% and -51.98%, respectively.

Kazakhstan’s tenge also took a big hit, falling by 46% against the dollar through 2015. The central Asian republic has 22 banks in our Top 100 CIS Banks ranking, accounting for 35.83% of total assets. The banks’ combined assets shrank 29.32% to $63.17bn, and total pre-tax profit fell by nearly two-thirds to $998m. Tier 1 capital shrank by 38.6%.

Ukraine, another big market with 16 banks accounting for 20.3% of the top 100’s assets, had a difficult year. The conflict in the Donbass region, political uncertainty and continuing financial weakness weighed heavy, and the hryvnia fell by 34.3% against the dollar. Total assets for the 16 banks shrank by 20.09% in dollar terms to $35.8m, while pre-tax net losses came in at $1.475bn.

Bucking the regional trend, Uzbekistan’s four representatives in the top 100, accounting for 5.85% of total assets, saw pre-tax profits rise 16.23%, while assets grew 13.47% to $10.31bn. This was despite the som losing 13% against the dollar in 2015. Meanwhile, Armenia (four banks in the ranking), Turkmenistan (two banks) and Kyrgyzstan (three banks) also saw aggregate growth of assets and Tier 1 capital.

Halyk Bank stays top

Kazakhstan’s Halyk Bank retains the top spot in the list, despite a 39.2% drop in Tier 1 capital to $1.54bn. The bank, controlled by president Nursultan Nazarbayev’s daughter Dinara and her husband Timur Kulibayev, ranks second for assets, with $13.10bn in total in 2015, down 14.9% on 2014. The bank expects a tougher year in 2016, with funding costs rising and the Kazakhstani economy facing its first recession since 1990.

In second place, up from third in 2014, is state-owned Belarusbank, with $1.425bn of Tier 1 capital, down 31.95%, and ranking third for assets ($12.72bn). The bank dominates the Belarussian market, controlling 40% of total assets. In May 2016, central bank governor Pavel Kallaur said that the government was preparing to sell a 25% stake in the bank, preferably to a Western investor.

Ukraine’s PrivatBank moves up from fourth place to third, with $1.11bn in Tier 1 capital. The bank completed a lengthy and controversial debt restructuring process in November 2015, extending maturities and allowing increases in liquidity and capital adequacy ratios.

Kazakhstan’s Kazkommertsbank moves down from second to fourth, with its Tier 1 capital dropping 50% to $1.105bn. However, Kazkommertsbank remains the regional leader in assets with $14.98bn.

Top movers

There are two new entries in the top 10 of our CIS banks ranking. National Bank of Uzbekistan, a state-owned bank largely concerned with funding foreign trade, moves up from 16th to eighth, following a capital hike in late 2015 financed by the Uzbekistan government and capitalisation of the bank’s profits. Ukrsotsbank of Ukraine rose spectacularly from 35th to 10th on the back of a 130.83% rise in Tier 1 capital, following capital injections totalling $500m by its then owner UniCredit to meet new International Monetary Fund-mandated central bank requirements and provide a ‘safety net’ for the future. The bank was transferred by UniCredit to Alfa Group’s ABH Holdings in 2016, in exchange for new shares worth 9.9% in ABH.

The highest Tier 1 growth in the region was registered by Pravex Bank, another Ukrainian institution, with a 232.56% rise to $52m, following an additional share issue which was bought out by owner Intesa Sanpaolo. UkrGasBank was another climber, rising to 25th from 58th in last year’s rankings on the back of 105.62% Tier 1 capital growth following stress tests in 2014 that indicated the need for capital increases. The bank also saw strong asset growth, and is expected to play a leading role in consolidation in the Ukrainian market.

Hamkor's assets growth

Uzbekistan’s HamkorBank saw the strongest asset growth in the region in 2015, with a 48.52% rise to $1.07bn. The bank is regarded as having a strong appetite for credit growth, though its expansion was slowed in the first half of 2016 by the temporary suspension of its foreign currency licence by the Central Bank of Uzbekistan.

The second highest asset growth was recorded by Armenia’s InecoBank, which acquired the local branch of ProCredit in a deal financed by the European Bank for Reconstruction and Development (EBRD) and two major local shareholders. The deal sees the EBRD take a stake in the merged bank, and integrates the two banks’ strong businesses focused on small and medium-sized enterprises.

Ranking 16th overall, Citibank Kazakhstan was one of the best-performing banks in 2015, achieving an ROC of 51.34% and an ROA of 11.64%, the latter the highest in the region. The bank also ranks second in the CIS in cost-to-income ratios (10.11%). It is the only foreign-owned custodian bank in Kazakhstan, and its relationships with both public sector and international investors give it a strong market position.

Alfa Bank Belarus achieved the highest ROC in the region at 55.33%, and ranked fourth for ROA (9.12%), though central bank stress tests in 2016 indicated that it might fall short of capital requirements.

Top 100 CIS Banks

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