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Best-performing banksDecember 3 2018

The Banker's Top 100 CIS Banks ranking: reaping the rewards of recovery

The Banker's latest rankings show Commonwealth of Independent States banks continuing to improve after 2015’s slump, with Kazakhstan leading the way. Andrew MacDowall reports.
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Double-digit asset and Tier 1 capital growth indicate a return to better days for banks in the Commonwealth of Independent States (CIS) in 2017. The recovering global oil price and domestic reforms in some of the region’s bigger economies contributed to an improving operating environment. After a sharp decline in assets and capital 2015, the recovery seen in 2016 has continued at a steady pace.

The Top 100 CIS banks’ assets as a whole grew by 6.82%, while aggregate Tier 1 capital growth was 16.07%, outstripping broader economic growth, and with little change from 6.88% asset and 16.12% Tier 1 capital growth in 2016. Overall assets totalled $199.03bn, with Tier 1 capital standing at $21.04bn. Aggregate return on assets (ROA) across the banks was 1.28%, up from 0.61% in 2016. (The figures do not include Russian banks, which The Banker ranks separately.)

Regional recovery picks up

Kazakhstan retains the biggest weighting in the Top 100, with 20 banks accounting for 33.15% of total assets, followed by Ukraine with 18 banks and 20.84% of all assets. Belarus, with 12 banks in the Top 100, accounted for 14.89% of overall assets.

Ukraine’s tentative economic recovery helped its leading banks increase their assets by 4.79% and slash losses by 89% in 2017, though ROA remains negative at -2%. The economy saw a second consecutive year of growth, with its gross domestic product (GDP) expanding by about 2.5%, despite the ongoing conflict in the east of the country, and fraying relations with the International Monetary Fund, which has not released funding for Ukraine since April 2017. Whereas in recent years Ukrainian banks’ US dollar performances have been dramatically affected by the depreciation of the hryvna, in 2017 the currency slid just 3.6% against the greenback.

In Kazakhstan, real GDP growth picked up to 4% in 2017 from just over 1% in 2015 and 2016, thanks to the rising oil price and growing oil output, with spillover effects to the rest of the economy. The 20 Kazakh banks in the Top 100 saw assets grow by 21.44%, while pre-tax profits soared by 80.87% to $1.57bn, taking aggregate ROA to 2.38%.

Once again, Kazakhstan’s Halyk Bank tops the table, with $2.74bn in Tier 1 capital, nearly twice that of second ranked Belarusbank. Halyk saw its pre-tax profits rise by nearly 30% to $599m, taking its ROA to 2.25%, and return on capital to 21.89%. 

In July 2017 Halyk Bank completed a takeover of troubled counterpart Kazkommertsbank (KKB) – in a deal supported by the Kazak government and the central bank – boosting the former’s market share to 34%. The merger was finalised in August 2018, part of ongoing reforms in the Kazakh banking sector that have included capital injections by the government, decreases in dollarisation and boosting capital adequacy.

The deal helped Halyk Bank boost its assets to $26.65bn in 2017, up 66.09% on the previous year, the second highest asset growth in the region. The highest growth was achieved by Turkmenistan’s state-owned Senagat Bank, which saw its assets grow by 89.75% to $1.4bn. Senegat acquired Garagum Bank, another state-owned institution, in March 2017.

Belarus bouncing back

Belarusbank remains in second position overall, with Tier 1 capital of $1.49bn – up 2.42% on 2016, despite its asset base shrinking by 1.19% to $12.23bn and a 12.19% drop in pre-tax profits to $158m. The Belarusian rouble fell by 0.5% against the US dollar in 2017, following its 2016 redenomination. In 2017, the Belarusian economy grew by 2.4%, its first expansion since 2014, supported by recovery in oil product income, and the improving economic situation in neighbouring Russia.

But banks are still feeling the effects of two years of recession, declining asset quality, and lower state-directed and subsidised lending as the government has worked to decrease liabilities to the public sector. The authorities are working to raise non-performing loan coverage and restructuring problem loans. Despite the difficult year, Belarusbank has taken the lead in housing lending under government programmes.

The government-owned State Savings Bank of Ukraine (known as Oschadbank) ranks third in Tier 1 capital in the overall ranking, with $1.02bn, up 107.6% on 2016. In November 2016, the European Bank for Reconstruction and Development (EBRD) signed an memorandum of understanding with Oschadbank to support the bank’s internal reforms, including improvements to corporate governance and guarantees backed by the EBRD for up to €50m of support to Ukrainian importers and exporters. The EBRD has also expressed interest in acquiring equity in Oschadbank. The government plans to offer a 20% stake in the lender in 2020, prior to a potential initial public offering of a further 25% equity share in 2022. The bank has benefited from consolidation in the Ukrainian banking sector, rising from 17th place in 2015’s rankings.

Another Ukrainian bank, PrivatBank, ranks fourth, with $861m in Tier 1 capital. The market’s largest bank by assets, PrivatBank was nationalised in late 2016 to protect its 20 million customers following a massive fraud scandal. The bank, previously owned by oligarch Ihor Kolomoisky, was found to have extended about 97% of its corporate loans to businesses associated with its shareholders, leading to a loss of at least $5.5bn. The bank’s board has approved a five-year strategy designed to prepare PrivatBank for sale to foreign investors, and is targeting a return to profitability in 2018, following a loss of $851m in 2017.

Belagroprombank, Belarus’s second largest bank by assets, ranks fifth for Tier 1 capital, with $705m. The state-owned bank saw a 34.2% increase in pre-tax profits in 2017, but performs below the market average on ROA (0.35%) and return on capital (2.37%).

TOP CIS Banks 2018

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