In the past decade, foreign investment and natural resources wealth have transformed the banking landscape in the Commonwealth of Independent States (CIS). The Banker's latest ranking for the region shows which countries have benefited the most from this change.

Three countries dominate the banking landscape in the Commonwealth of Independent States (CIS) (excluding Russia – and including Georgia, although the country departed the CIS in 2009). These three are Ukraine, Kazakhstan and Belarus, which between them account for almost 90% of bank capital and assets in the region.

Their dominance is so great that, to analyse and rank banks from the other eight countries, it is necessary to separate out the big three. The largest 12 banks in the CIS are all from these three countries, and only four banks from the other eight countries (one each from Uzbekistan and Azerbaijan, and two from Georgia) feature anywhere among the largest 30.

This was not always the case. In fact, the picture was quite different just a decade ago, when these three countries accounted for only 53% of assets. In 2000, the largest banking market in the CIS was Uzbekistan, with 35% of total assets. Uzbekistan remains a command economy where the vast majority of banks are owned by the state and have generally been required to conduct directed lending.

The effect on the Uzbek banking system of this economic environment is striking, and its position has steadily shrunk within our rankings since 2000. Assets have fallen by 40%, Tier 1 capital has halved, and the banking sector recorded losses in three of the past 10 years. Among the top 75 CIS banks, seven were from Uzbekistan in 2000. Today, only the largest, the Bank for Foreign Economic Affairs (Uzbek Vnesheconombank), is still in the list.

Natural resources boom

At the same time, the expansion of the fastest-growing banking sectors has been spectacular. In the case of Kazakhstan, the oil and gas boom drove liquidity into the banking sector, which was then augmented by a borrowing binge on international bond markets that peaked in early 2007. Assets grew 32 times over from 2000 to 2007, with both assets and capital more than doubling in 2006 alone. By 2007, the top four banks in the CIS were all from Kazakhstan, and another two joined them in the top 10.

The bubble burst before the height of the global financial crisis, with the Kazakh real-estate market crashing in 2007. As a result, while many emerging market banking sectors were relatively resilient until 2009, $4.35bn in Tier 1 capital was wiped off the Kazakh banking sector in 2008, with two of the top four banks, BTA and Alliance, disappearing from the rankings. Following government capital injections and debt-for-equity swaps, both these banks may reappear in the Top 1000 rankings to be published in July 2011, but it is to be hoped that Kazakhstan will grow more modestly in the future.

Steady performers

Natural resources do not automatically lead to banking sector excess, however. Among the smaller markets, hydrocarbon-rich Azerbaijan has witnessed a rise in Tier 1 capital of 72 times over the past decade, and its share of total assets in the region has risen to 3.6%, from less than 0.1% in 2000. But Azeri banks have largely eschewed the Eurobond market, with bank growth driven mainly by increased penetration in a market that was virtually unbanked a decade ago. They remained profitable in 2009, although at a much lower level than in previous years.

Meanwhile, Belarus has achieved a steady rise without the benefit of vast oil and gas reserves. Gradual economic liberalisation and the entry of foreign capital into the banking sector helped the country to almost double its share of total assets in 10 years, to 15% of the CIS regional total. There are seven foreign-owned banks in Belarus in the latest ranking, out of 11. This compares to just one foreign-owned bank out of the four Belarusians that featured in the 2000 Top 75. Across the region as a whole, the number of foreign-owned banks has almost trebled in the past decade, to 29 out of the top 75.

CIS ranking
CIS ranking


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