Bank Research by Expert RA
Stabilization was the principal trend in the banking sector in 2009. Significant consolidation of the liabilities base may be considered the main success in 2009. The banks managed not only to increase the capital (growth equal to +21.2%) but also to ensure essential inflow of retail deposits (+26.7%) and funds or organizations (+8.9%). However, despite consolidation of confidence in the system, the banks remain to be subjected to strong criticism. The reason lies in the failure of the mission for lending support to the real sector, which might facilitate to a stronger economic recovery. In the past year, the portfolio of lending to organizations grew by 0.3% only, whereas investment in securities grew almost two times. However, such a dynamics is caused by normal market incentives: as long as the banks have not get rid of bad debts, and the depth and duration of the recession are not obvious, the funds will be placed into the least risky and the most liquid lines of business.
Lending to small and medium-sized business was the only segment having shown a positive growth on the results of 2009. The portfolio of lending to SMB grew by 3.7%, which looks impressive against the background of failure in retail lending (-11%) and stagnation in lending to large corporate borrowers (-0.6%). Surprisingly, lending to SMB has already become a priority line of activity for many banks (including private ones), the bankers found an opportunity to support and develop this line under stiff conditions of 2009.
The risks of large-scale losses in connection with additional formation of loan loss provisions still remain in the banking system. In 2009, the overdue debt grew from 2.1% to 5.1%, the percentage of loans of the 4th and 5th quality categories - from 3.8% to 9.6%, and the actual percentage of troubled assets may reach 15% taking into account a certain portion of the extended loans. At the same time, the cash reserve ration was equal to 9.1% only as of 01.01.2010. Traditionally, profit has been the main source of reserves formation in commercial banks. In 2009, the figures of the banking sector profitability were rather modest (the aggregate profit was equal to RUB 205 billion, the return on equity - to 4.9%). It is partly due to low return on equity in the past year that additional provisions are to be formed now. However, the banks' capability of increasing is limited by the pressure on the part of the liabilities attracted in the period of "expensive" money and by interest rates lowering due to the banks' competition for "good" borrowers.
Figures 1.
On the results of 2009, the banks' assets grew by only 5%, with the lending portfolio having remained
at the level of 2008
Figures 2.
In 2009, only the portfolio of lending to small and medium-sized businesses showed a positive growth
| Title | Summary |
| Bank ranking by Russian Accounting Standards, 2008 | Another year of growth: formal results of the Russian banks operations in
2008 present no room for fear or even serious alarm. Consolidated assets went
up by 39% (in 2007 - by 44%), same as bank assets to GDP (62 to 67%), and own
capital (increase by 43% comparing with 58% in 2007). The figures look
impressive - "bad assets" in bank balance sheets amounted to mere 1.5%.
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| Bank deposit market: crisis gives encouragement | Instability on the national banking system complemented by negative
information from international financial markets interrupted progressive
movement of population savings attracted by banks. The bank deposit market went
out of balance and for the first time in the last four years showed signs of
panic among depositors: amount of deposits in September went down by 1.5%.
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| Financial stability of Russian banks: size or specialty? | The Russian bank market is affected by ups and downs at the international
markets, liquidity problems, political instability and poor institutional
regulation (usually noted by Western analysts). American rating agencies in
their recent reports gave very low assessment of the Russian banking system
regulation and stability level - not just below advanced economies, but next to
the least developed countries of the world. We do not find the situation so
dramatic. Recently domestic banks have demonstrated reasonable success in
developing risk-management systems, often showing financial and profit
indicators higher then in the West. Quality regulation has been progressing
even more speedily and efficiently than might be expected.
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| Bank deposit market: modern status and consumer preferences | Turbulent development at the world financial markets is of no serious
danger for the banking sector. After a long period of macroeconomic stability
the Russian banking system has reached the trajectory of sustainable
development. Presently domestic banks are less vulnerable to outside risks than
it may be expected by many. The world financial instability may cause failures
in supporting liquidity (although CB has acquired efficient command of dealing
with the issue) and losses in market and currency risks (which, according to
our conservative calculations, would not exceed 7% of the banking system
capital).
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| THE BANK CHANNEL GONE DRY: The bank insurance market in 2008 | The bank insurance growing trajectory was cut short by the crisis. The
bank insurance market showed 31% growth in 2008 against 2007 to achieve 90 bln
rubles. But, according to Expert RA, without the crisis the increment might
reach 50-55%. The growth was mostly attributed to retail types of insurance,
same as in the past, covering about 80% of all contributions
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| Russian banks in the first half of 2008 | CB fights inflation: increased re-financing rates and norms of mandatory
reserves, approved in February, gave a start to more rigorous monetary policy.
CB managed to hold proper balance between fight against inflation and banking
system stability. To control growing monetary mass and curb inflation, CB
introduced a powerful instrument of mandatory reserves. Increase of 5
percentage points within less than a year (October 2007 - September 2008)
related to liabilities of credit organizations to non-resident banks.
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| Banking risk-management: post-crisis knockout | The world financial crisis proved to be much more profound and lengthy
than was ever expected by anybody including bank risk-managers. The best way to
protect from risks in time of current ambiguity is to cut down credit
operations and go liquid to the maximum extent. The world commodity and stock
markets try to regain balance - making goals and purposes of risk-management
quite vague.
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