Russian news agency Rosbalt quotes the Director of the Financial Institutions Analyst Department with Fitch Dmitry Vasilyev who stated that the number of banks in Russia remains too high even after the Central Bank’s recent cleanup. The number of banks was reduced from over 1,000 to approximately 600 within the last couple of years, Vasilyev said. He stated that the number of banks per million inhabitants in countries comparable to Russia in terms of GDP is lower than the Russian average. Consolidation of the Russian banking sector continues, but it hasn’t affected the smallest banks yet.
Earlier last week, Fitch blew the lid off the troubled financial condition of Bank Peresvet, a bank that has the Russian Orthodox Church as the single largest shareholder, and reduced its credit rating to “D”, designating a bank with weaknesses.
Russian business daily Vedomosti
reports that approximately 3,000 Rosinterbank’s clients with 5 billion rubles (USD 80.4 million) in deposits might not be able to get their money from the Russian Deposit Insurance Agency after the breakdown of their bank. These clients opened or topped their accounts after July 18, the date on which the Agency last collected the data on Rosinterbank’s deposits. Information on Rosinterbank’s deposits after that date is lost, as the bank pulled the plug on the system that monitored it before it folded. Therefore, the Russian Deposit Insurance Agency has information on 84,400 clients with 52.1 billion rubles (USD 837.75 million) in deposits, while the actual volume of deposits held in the bank at the time of its bankruptcy is probably closer to 57 billion rubles (USD 916.5 million). Former head of the bank Marina Krasnova tried to be helpful and delivered the bank’s internal data on clients from mid September, but the Agency has no intention to rely on the list coming from the bank that had previously deliberately disconnected the centralized data collection system. The Agency will review any documents presented by the bank’s clients who placed their deposits after July 18, but there are no guarantees that their claims will be met.
Rosinterbank was one of the fastest growing banks in the country, jumping from 938th to 61st position on the list of banks ranked by assets within six years, from 2010 to 2016. Its aggressive lending policies eventually prompted the Russian Central Bank to introduce mandatory supervision and place limits on attracting private deposits. However, the bank seems to have continued to attract private deposits and engaged in shadow accounting. This practice is nothing exceptional in Russia – for example, one of the smaller banks, Arksbank, had 4 billion rubles of deposits on its official balance sheet and ten times as much on its “unofficial” balance.
Business daily Vedomosti.ru quotes one of the banking industry analysts, stating that the Russian banks earned approximately 57.8 billion rubles (USD 1.92 billion) in penalty fees in 2012. While for some banks the growth of penalty fees corresponds to their asset growth, others record a disproportionate growth in respective revenues that can be explained by the growth of unsecured consumer loans and non-performing loans. Some industry experts even presume that there are banks that deliberately focus on a group of less disciplined customers in order to generate higher fee income.
At the same time, the banks that focus on corporate lending register a decline in respective fees, having done their best to get rid of bad loans. This group contains some the largest banks in the market, including the largest: Sberbank, VTB, Alfa-bank. In addition, there are some specific cases: Bank Moskvy was forced to book additional penalties after the audit found a large volume of bad loans provided to entities related to the bank’s former President Andrey Borodin (it is doubtful that the bank will ever collect them, though); Rosselhozbank (Russian agricultural bank) also generated a large amount of penalty fees due to its unusually high percentage of non-performing loans – 10.7 percent, almost three times the industry average.
Today’s edition of Gazeta.ru reports on VTB bank’s financial results for the third quarter of 2012, which was one of the most successful quarters in the bank’s history. While VTB’s income from corporate loans declined, approximately half of the bank’s total net profit of 26.6 billion rubles (USD 865 million) in the third quarter came from non-core activities, such as leasing, insurance and development. VTB’s third quarter net profit exceeded analysts’ expectations by 25 percent and was 40 percent higher compared to the same period in 2011.
VTB’s President Mr. Andrey Kostin stated that the VTB group’s net profits for the third quarter of 2012 represent the second best financial result in its history. According to Kostin, such results are attributable to efficient expansion of retail banking and adequate risk management policies. Analysts remarked that the contribution of VTB’s non-core activities to the group’s overall financial result were extraordinary. However, the VTB group’s net profit for the first nine months of 2012 was 17 percent lower than in the same period in 2011 – 60.2 billion rubles (USD 1.96 billion) against 72.6 billion rubles (USD 2.36 billion), respectively. The bank justified this by higher personnel costs as a consequence of the integration of the Bank of Moscow, acquired in February 2011. Analysts agree that the acquisition and related integration costs were not accompanied by corresponding organic growth – group’s assets increased by a mere 4.1 percent in the first nine months of 2012, to 4.8 trillion rubles (USD 156 billion). In addition, the bank had to increase its provisions by 80 percent compared to the same period last year, to 25.3 billion rubles (USD 822 million). Non-performing loans represented 5.6 percent of the bank’s total loan portfolio.
VTB’s management stated that the bank’s retail business increased significantly during the first nine months of 2012 – loans to citizens amounted to 1.03 trillion rubles (USD 33.5 billion), increasing by 24.6 percent from the beginning of the year and contributing 35.6 billion roubles (USD 1.15 billion) to the bank’s total net profit in the respective period. Corporate lending brought disappointing results, adding 18.7 billion rubles (USD 607 million) to the bank’s net profits. VTB suffered a loss from its investment banking activities and reduced its securities portfolio by 25.9 percent to 201.3 billion rubles (USD 6.54 billion) from the beginning of the year. The bank’s capital adequacy ratio on September 30, 2012, was 12.9 percent.
VTB is the second largest Russian bank in terms of assets and the largest bank in the country according to its equity. The Government is the largest shareholder with a 75.6 percent stake. After the acquisition of the Bank of Moscow in 2011 for 251 billion rubles (USD 8.15 billion), some VTB officials complained about the deal, referring to a „hole“ of 366 billion rubles (USD 11.89 billion) in the Bank of Moscow’s balance sheet.