The Top 50 Russian Banks 2019: bailouts shake the sector amid slowing growth

The past few years have been turbulent for banks in the world’s largest country. No sooner had the Russian Central Bank (CBR) set up the Banking Sector Consolidation Fund in mid-2017 than it had to bail out three of the country's 10 largest banks by assets over the next four months: Otkritie Financial Corporation, B&N Bank and Promsvyazbank. The bill for the clean-up had ballooned to Rbs3000bn ($45bn) by mid-2018, well beyond the Rbs2600bn central bank governor Elvira Nabiullina predicted would be lost had the banks been allowed to fail.

Otkritie, which was number five by Tier 1 capital in The Banker's previous ranking, has tumbled to 11th place, though it is still Russia’s sixth largest lender by assets. Promsvyazbank, which was formerly ranked 12th by Tier 1 capital, does not feature in this year’s Top 50 list, having reported negative Tier 1 capital growth over 2017. B&N retains its 13th place. There is more positive news in the top 10 by Tier 1 capital; most notably Sovcombank, which absorbed RosEvroBank in 2017, shoots up the list from 20th to 10th place.

Cause for optimism

Though Otkritie and B&N are some of the worst in class in terms of capital-to-assets ratio at numbers 50 and 45, respectively, there are signs of recovery. Both transferred toxic assets into ‘bad banks’ and went through extensive clean-up programmes. In late 2018, Otkritie chief executive Mikhail Zadornov said the bank was ready to focus on growth again. The CBR announced that it plans to combine B&N and Otkritie in early 2019, with a view to selling the merged entity back to the market.

One in five of the Top 50 Russian banks listed reported losses at year-end 2017. Those in the black are still scoring reasonably well on profit growth, but some have struggled to keep up the pace. Sberbank, VTB Bank and Gazprombank, the top three Russian banks by both Tier 1 capital and total assets, all saw profit growth slow down significantly compared with year-end 2016. By contrast, Tier 1 capital grew at all three in 2017.

The Top 50 list reveals some surprises. Renaissance Credit, ranked 39th in Tier 1 capital and 36 in total assets, has stormed to the top of the return on capital rankings, despite not featuring in the equivalent table last year. The lender reported record profits for 2017 and enters the top 10 by return on assets (ROA) in fifth place. JPMorgan International Bank Russia and Expobank have broken into the ROA table in eighth and ninth place, respectively, meaning these three banks have pushed out RosEvroBank, Deutsche Bank Russia and HSBC Bank Russia. 

Foreign banks prosper

Despite a new round of US-imposed economic sanctions against Russia announced in August 2017, all of the top 10 foreign-owned subsidiaries in the country increased their Tier 1 capital. Home Credit and Finance Bank has leapfrogged Citibank Russia to take fourth place in the ranking, having grown its Tier 1 capital pool by 27% to $918m in 2017.

Russian banks have been bulking up their capitalisation levels over the past couple of years as the country's economic situation has remained delicate. The CBR decided to pre-emptively bump up the key interest rate by 0.25 percentage points to 7.75% in December 2018, in response to fears of rising inflation, which hit 4.2% at the end of 2018, slightly above the target of 4%. Recent flare-ups in the conflict with Ukraine have prompted the US to review a raft of potential further reprisals in the first quarter of 2019, which could target the banking sector and government debt. Russian banks may yet look east for new business opportunities as a result.

Where previously it was nearly impossible for Russian banks to start up and operate in China, steps are being taken to liberalise the country's banking system, which could allow them to get a full operating licence. While some Russian banks do have operations in China, only VTB has a licence, but this comes with constraints. If the barriers for Russian banks to operate in China are lifted, this could open up a whole new avenue for growth and revenues for Russian lenders.