The road has been rocky for Russian banks of late. Total profits across Russia’s Top 100 banks by Tier 1 capital (for the financial year ending December 2013 and using the exchange rate at December 31) dropped to $26.9bn, from $29.2bn at the close of 2012 – before any impact from the 2014 rouble exchange rate slump or international sanctions imposed on Russia were felt.
Editor's ChoiceÂ
Aggregate Tier 1 capital among the top 100 banks increased to $132.75bn for 2013 from $120.88bn in 2012, which, coupled with the lower profits, also caused the aggregate return on Tier 1 capital to come out lower than in The Banker's previous ranking – by 3.9 percentage points at 20.3%.
While little changed in the top 10 ranking by Tier 1 capital – Sberbank, VTB Bank, Gazprombank, Russian Agricultural Bank and Alfa Bank still make up the top five, and all 10 banks increased their Tier 1 capital – four banks saw their profits drop and two recorded a fall in assets.
Russia’s largest bank, Sberbank, increased its capital base by 17.4% to $43.52bn but saw a 5.6% dip in profits, while VTB’s capital rose by 20.5%.
Winners and losers
Yet the biggest change in the top 10 is Otkritie Financial Corporation Bank’s jump from the ninth position into sixth. This was a result of Otkritie’s reverse takeover of Nomos Bank, which saw the investment bank transform into a financial institution with both retail ambitions and a corporate and investment banking business. At the end of 2013, Otkritie had increased its Tier 1 capital by 49.7% to $3.62bn.
Otkritie is in the process of acquiring Bank Petrocommerce, Russia’s 28th largest bank by Tier 1 capital, after Petrocommerce’s capital and profitability position slumped to losses of $333m in 2013.
Home Credit and Finance Bank edged up four spots to rank 12th, while MDM Bank fell five positions to 16th in this year’s ranking. MDM had by far the highest pre-tax losses among the Top 100 Russian lenders of $451.59m. This compares to overall losses of $1bn across seven banks in the Top 100. In last year's ranking, this figure was considerably lower at $353m across eight banks.
Latest developments
Since year-end 2013, two banks have been put under the Russian central bank’s temporary administration and since sold on, so are therefore excluded from our ranking. Moscomprivatbank, the Russian arm of Ukraine’s Privatbank, was seen to be in financial danger at the beginning of 2014 and has been handed over to B&N Bank, which renamed the lender B&N Bank Credit Cards. Based on its figures for the end of 2013, had Moscomprivatbank been eligible for the ranking, it would have been placed in 99th.
Consumer lender National Bank Trust, which would have been ranked 49th, came into difficulties through a shortage in liquidity at the end of 2014 and Otkritie has been chosen as investor for the bank’s financial rehabilitation.
At the same time, the rouble had lost 42% of its value year on year at the end of 2014. When converting the top 100 Russian bank’s year-end 2013 profits with the exchange rate of December 31, 2014, at 56.24 units per dollar, the banks have only made $15.8bn, and as of January 9 only $14.3bn. These issues will have repercussions in next year’s rankings.
Central bank intervention
Still, the Russian central bank is busy trying to keep the rouble from tumbling and banks from feeling the impact too strongly. Attempts to stabilise the currency with a 6.5 percentage point hike in the interest rates to 17% in December did not stop the fall, which is largely viewed as being caused by a plunging oil price and international sanctions imposed upon parts of the Russian economy.
To save the banks some pain, however, the central bank has allowed banks to temporarily use the exchange rate from September 30 for their full-year 2014 accounts, rather than that of December 31, making the denominator 39.38 units per dollar rather than 56.24.
The central bank has further allowed banks to suspend normal accounting and provisioning rules, and has lifted the ceiling for interest rates on consumer loans until July 1, 2015, in the hope that the rouble exchange rate fluctuations are merely temporary.
This should be a welcome development for consumer lenders, such as the traditional consumer banks Home Credit and Finance Bank and Russian Standard Bank, as well as those with fast-growing franchises such as MTS Bank (ranked 23rd, up from 31st) and Sovcombank (ranked 53rd, up from 71st), which have seen regulators crack down on their business after a boom in consumer assets over the past year.
Things to watch in 2015
In another attempt to strengthen the economy, at the end of December the Russian government injected capital into several businesses, including the country’s second largest lender by Tier 1 capital and assets, VTB Bank. VTB received Rbs100bn ($1.54bn) from the country’s National Wealth Fund (NWF), with another Rbs150bn payment expected during the first quarter of 2015.
The NWF also invested in the country’s third largest bank by capital and assets, Gazprombank, in the form of Rbs39.95bn of preferred shares, while the bank has also asked for another Rbs30bn.
With foreign funding hard to get, especially for banks on the international sanctions list, banks with high loan-to-deposit ratios are finding themselves potentially more exposed to the currency fluctuations in upcoming years. At 458%, National Reserve Bank has the highest loan-to-deposit ratio of the top 100 banks, excluding foreign-owned subsidiaries, closely followed by Bank Severo Vostochny Alliance. CentroCredit Bank and Tinkoff Credit Systems have nearly 200% of loans to deposits.
Tinkoff climbed 49 positions in the overall Top 100 ranking to 27th following an initial public offering on the London Stock Exchange, which boosted the credit card specialist’s capital base by 307.5%. Tinkoff, however, is also one of those banks that has borrowed money from investors in foreign currencies, according to Dealogic. In the case of Tinkoff this was $630m equivalent. VTB is the Russian bank with the highest amount of issuance over the past 10 years with $32.46bn, followed by Sberbank’s $17.21bn and Gazprombank’s $12.15bn.Â
The Banker's Top Russian banks ranking, 2015 originally appeared in the Febraury 2015 issue of the magazine. The full results of the ranking are available on The Banker Database. Find out more about the database, register for a free trial or subscribe today.
