Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Best-performing banksFebruary 1 2010

Stage set for mergers

As the central bank of Russia tightens capital requirements, the country's Top 50 banks look set to continue accumulating capital and assets at the expense of smaller players. Writer Philip Alexander
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

The total Tier 1 capital of the Top 50 Russian banks has fallen by nearly $7bn since The Banker's previous ranking. This partly reflects the weakening of the rouble in late 2008, which affected The Banker's rankings because they are calculated in dollars. But material losses at certain banks, especially the third largest in the ranking, Gazprombank, also acted as a direct drag on the total.

Despite those losses, the Russian banking system survived with only a handful of significant bank rescues needed. One of those, Sobinbank, was absorbed by Gazprombank, putting further pressure on the latter's balance sheet, which had already been hit by financial market losses as the Russian stock market plummeted.

Asset growth

Although Gazprombank suffered losses of nearly $2.6bn, which caused Tier 1 capital to fall by more than 50% in 2008, its asset base grew by more than 60% and this diverging trend continued in the first half of 2009.

This underlines its role in mopping up troubled assets and maintaining lending to the economy on behalf of the Russian state, which owns the majority of the banks through various arms of state gas company Gazprom. Its importance to government policy was underscored by a capital increase of Rbs100bn ($3.38bn) from state development bank Vnesheconombank in November 2009.

The same role explains the nine-place rise of Russian Agricultural Bank (Rosselkhozbank), which is 100% state-owned and saw its Tier 1 capital increase by nearly 63% in this year's rankings and a further 67% in the first half of 2009. The government expanded the bank's activities to maintain funding to agribusiness and the rural population - which the bank estimates at 27% of the total population. In many rural areas, private sector banking networks are limited and borrowers have struggled to find credit since the liquidity squeeze began in 2008.

Private sector revival

This is not to say that private sector banks have been passive in responding to the crisis. On this front, MDM and URSA banks led the way with a merger under the MDM brand, completed in August 2009. Interim data for the first half of 2009 suggests the merged bank may move to ninth place in the rankings, becoming the second largest locally owned private bank after Alfa Bank. Alfa's own capital continued to grow in 2008 and in the first half of 2009, swelled by sustained profitability and the acquisition of Bank Severnaya Kazna.

Private sector banks also dominate the list of the strongest capital-to-assets ratios, suggesting they have the resources to begin more active lending in 2010. But it is noticeable that the top five best-capitalised banks, which often have extraordinarily high reported ratios, are all closely held institutions, often with strong ties to particular industrial groups.

Encouraging these banks to put more capital at risk and to continue diversifying their corporate banking activity beyond cross-ownership lending will be an important step in boosting the volume of local credit available to Russian companies. This will help to avoid a repeat of the foreign currency debt build-up that left the country exposed when the credit crunch hit during 2008.

Mapping out the changes in Russian banking

The availability of up-to-date data for foreign-owned banks in Russia has improved considerably in this year's rankings. This has provided a dramatic insight into their continued commitment to operating in the country, despite the tough conditions in the second half of 2008 and in 2009.

ZAO Raiffeisenbank, the local subsidiary of the Austrian group, emerges as the largest non-state bank in the country, with total Tier 1 capital of $2.16bn, and UniCredit is not far behind, with capital of $1.79bn. Both have assets of more than $20bn, and with profits on capital of around the 30% mark, both are still recording better return-on-equity figures than the largest locally owned banks.

The top three fastest climber spots were also taken by foreign-owned banks: ING Bank (Eurasia), Nordea's Orgresbank and KBC's Absolut Bank. But the prospects for Absolut are now uncertain - KBC announced in November 2009 that it is seeking a buyer for the bank as part of the group restructuring programme following a Belgian government bail-out.

Tier 1 capital ($m)

Tier 1 capital ($m)

Total assets ($m)

Total assets ($m)

Total pre-tax profits ($m)

Total pre-tax profits ($m)

Soundest capital assets ratio

Soundest capital assets ratio

Interim results as at 30/06/09 ($m)

Interim results as at 30/06/09 ($m)

Nine-month results as at 30/09/09 ($m)

Nine-month results as at 30/09/09 ($m)

Was this article helpful?

Thank you for your feedback!