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Best-performing banksFebruary 1 2013

Top 100 Russian Banks: consolidation set to continue

Acquisitions by both private and state-owned banks in Russia are gradually concentrating the top end of the banking sector, but the long tail of closely held and regional banks remains.
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Russia’s top four banks remain unchanged, with state ownership continuing to dominate the financial sector. Sberbank’s $5.2bn secondary public offering in September 2012 reduced the state’s holding to only just above 50%, and the bank’s management is aiming for international best practice.

Below the top four, consolidation is taking hold. Bank of Moscow, 14th in last year’s rankings, disappears this year after its absorption into VTB in 2011 – although the brand remains in use (see Top 500 Brands ranking). Large regional player Bank of Khanty-Mansiysk, ranking 24th last year, has also been removed from the ranking after its purchase by Nomos Bank. And Rosbank, into which French owner Société Générale consolidated several smaller Russian subsidiaries last year, has now overtaken Alfa Bank to be the largest privately owned bank in Russia in tier 1 capital terms.

The consolidation trend looks set to continue in 2013. Otkritie, which has risen to 29th in this year’s ranking from 34th last year, has announced that it will acquire the much larger Nomos, ranked at eight. If the deal closes successfully, the combined entity would potentially be Russia’s second largest privately owned bank by assets (after Alfa), with total assets of more than $28bn as of the end of 2011.

Consumer lending stars

Lowest Cost To Income Ratios

In last year’s ranking, The Banker flagged up the superior performance of specialist consumer and credit card lenders, and this trend has if anything become even stronger in this year’s ranking. In fact, five of the top 10 banks for return on assets (ROA) in Russia in 2011 were consumer lenders. A sixth consumer lending bank, Russian Standard, lies at number 11, with a return on assets of 3.5%.

Locally owned Russian Standard effectively founded the sector in Russia in 1999, but consumer credit is now predominantly a business for foreign players, including the US-based GE Money and Hungary’s OTP. The second best performer, Home Credit, is owned by PPF Group, the investment vehicle of Czech entrepreneur Petr Kellner, while Credit Europe Bank is owned by Fiba Group, which was founded by Turkish banking pioneer Husnu Ozyegin. Among the consumer lenders in the top 10 for ROA, only Orient Express Bank is locally owned.

The only full-service universal bank among the top 10 for ROA in Russia is the country’s largest, Sberbank, the dominant player in both retail and corporate banking. Thanks to a vast network of more than 19,000 branches – the legacy of its role as the Soviet-era savings bank – Sberbank’s hold on the country’s retail deposit base has provided a cheap source of funding that allows the bank to maintain high margins. Sberbank itself has identified the consumer lending segment as a potential source of even better returns, buying a 70% stake in the Russian subsidiary of Cetelem, BNP Paribas’ consumer lending brand, in 2012.

In fact, Sberbank accounted for an extraordinary 58% of the top 10 largest Russian bank profits in 2011, generating more than $12bn. This is a far larger share than either of the two other leading state-owned banks, VTB and Gazprombank. While they may be highly profitable, the consumer lenders remain comparatively small – only Home Credit makes it into the top 10 in terms of the size of its profits.

Russian banks top 10

Lean machines

In addition to the growth potential of retail lending, consumer banks also benefit from very lean business models that make extensive use of centralised data management, as well as mobile and online banking technology. Both OTP and Home Credit feature among the 10 banks with the best cost-to-income ratios. Many of the other banks on this list are closely held institutions that focus on lending to a captive corporate customer base, and therefore run with relatively small staff numbers and branch networks.

Also among the top 10 best cost-to-income ratios are Bank St Petersburg (BSP) and Credit Bank of Moscow, which both specialise in lending to small and medium-sized businesses. This is another area where there is ample scope for lending growth, with Sberbank historically the only provider of local small business lending in many regions. Both BSP and Credit Bank now benefit from the stability and technical expertise provided by having multilateral organisations – the European Bank for Reconstruction and Development and the International Finance Corporation – as significant shareholders. Credit Bank of Moscow is also second on the fastest movers list, after almost doubling its Tier 1 capital in 2011.

The fastest mover is Surgutneftegasbank, which could be part of a wider trend for the captive banks of hydrocarbon companies to increase their role in Russia’s economy. Gazprombank is already a major presence in the sector and oil company Rosneft hired a trio of Morgan Stanley executives in 2012 to lead the consolidation of its financial subsidiaries into a single Rosneft Bank. This will be built out of the Russian Regional Development Bank, currently at number 60 in our ranking.

Russian banks top 10 - 2

Foreign focus

BNP Paribas Russia, a subsidiary of the French bank, is also among the 10 fastest movers in 2011. This might seem surprising, given the volume of commentary suggesting that pressure at home would prompt eurozone banks to retrench in central and eastern Europe. A number of banks certainly have scaled back. Germany’s WestLB no longer exists, while Spain’s Santander and the UK’s HSBC and Barclays have sold out of retail operations in Russia. Banks such as the Russian subsidiary of Intesa and Uniastrum (owned by Bank of Cyprus) have held Tier 1 capital flat even while the banks are profitable. This suggests profits in Russia are being paid to the parent rather than reinvested in the local operations.

But those banks committed to Russia appear to be intensifying their activities. BNP Paribas, Société Générale’s Rosbank and ING Bank Eurasia are all among the top 10 banks for asset growth. Nordea Bank Russia, which The Banker flagged up last year as a potential growth story, continued its rise up the ranking, entering the top 20 this year from 26th last year. 

For the full Russian banks ranking see the PDF:

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