Large pri­vate banks in Rus­sia take mar­ket share amid re­ces­sion

Financial Mirror (Cyprus) - - FRONT PAGE -

Amid Rus­sia’s re­ces­sion, the coun­try’s largest pri­vate banks are con­sol­i­dat­ing their mar­ket share — a credit pos­i­tive trend likely to con­tinue in 2016, Moody’s In­vestors Ser­vice said.

“The share of as­sets at the top five pri­vately owned banks in­creased to 12.5% in mid-2015, from 10.8% at the end of 2014 and 8.4% at the end of 2013,” said Elena Redko, an As­sis­tant Vice Pres­i­dent at Moody’s. “The share of smaller pri­vate banks, on the other hand, fell to 18.9% from 23.4% at end2013.”

“We view the con­sol­i­da­tion of Rus­sian pri­vate banks as credit pos­i­tive be­cause stronger pri­vate banks will en­hance over­all com­pet­i­tive dy­nam­ics in the bank­ing sys­tem,” said Redko. “In ad­di­tion, in­te­gra­tion risks for most of the trans­ac­tions seem man­age­able and un­likely to erode credit fun­da­men­tals of the lead­ing banks.”

A num­ber of trends are driv­ing con­sol­i­da­tion at the top of the pri­vate­sec­tor Rus­sian bank­ing mar­ket. The Rus­sian reg­u­la­tor, for ex­am­ple, is en­cour­ag­ing “re­hab” takeovers of small weak banks by fi­nan­cially stronger in­sti­tu­tions.

“Many pri­vately owned banks have weak cap­i­tal buf­fers which are erod­ing fur­ther in the cur­rent en­vi­ron­ment,” ex­plained Redko. “If cur­rent share­hold­ers are un­able to pro­vide ad­di­tional cap­i­tal, in many cases the Cen­tral Bank of Rus­sia has been pro­vid­ing reg­u­la­tory and liq­uid­ity sup­port to en­cour­age poorly cap­i­talised banks to in­te­grate into larger in­sti­tu­tions.”

In ad­di­tion, the CBR is also push­ing prob­lem­atic banks out of the mar­ket en­tirely by re­vok­ing bank­ing li­censes for rea­sons in­clud­ing du­bi­ous trans­ac­tions, mis­rep­re­sen­ta­tion of fi­nan­cial state­ments, and ex­ces­sive credit risk — more than 100, mostly small, in­sti­tu­tions have had their bank­ing li­censes re­voked by the CBR in 2014 and 2015.

Moody’s expects the reg­u­la­tor to en­cour­age fur­ther shrink­ing of the num­ber of banks as it en­cour­ages con­sol­i­da­tion into strongly cap­i­talised, well-run in­sti­tu­tions.

Fur­ther­more, sub­sidiaries of

many for­eign

Rus­sian banks are down­sis­ing - they sim­ply do not have the ap­petite to take in­creased credit risk in the cur­rent en­vi­ron­ment, ac­cord­ing to the rat­ing agency - and are likely to fur­ther delever­age their Rus­sian oper­a­tions in 2016 in Moody’s view. Mar­ket share has al­ready dropped to 8.2% of as­sets as at July 1, 2015 from 9% as at year-end 2013.

Fi­nally, in­ter­na­tional sanc­tions against ma­jor state-owned banks are cre­at­ing op­por­tu­ni­ties for large pri­vate banks to take busi­ness.

As th­ese sanc­tions (in some cases) pre­vent the state banks from pro­vid­ing Rus­sia’s largest com­pa­nies with needed for­eign-cur­rency credit, pri­vate banks have been able to com­pete for high-qual­ity bor­row­ers when such bor­row­ers re­fi­nance ma­tur­ing in­ter­na­tional debt.

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