Analysis: Two's a crowd as Russian state banks squeeze rivals
MOSCOW (Reuters) - Putin and Medvedev, Gazprom and Rosneft: the key players in Russia tend to come in pairs.
Now state banks Sberbank and VTB are set to strengthen their duopoly as Russia's financial sector emerges from crisis.
Two developments this week offer a taste of things to come, with state-controlled VTB placing a 10 percent stake with investors and Barclays shutting down its fledgling retail operation in Russia after concluding it cannot compete.
The message is clear: Russia wants to build a banking system strong enough to insulate the economy against external shocks of the type caused by the Lehman Brothers collapse, which unleashed capital outflows, an economic slump and rouble devaluation.
Sberbank and VTB have been assigned a leading role in underwriting credit, investment and growth. Privatization serves as a means to that end by boosting investor scrutiny and, it is hoped, operational efficiency.
Private-sector banks, whose state rivals enjoy the backing of an investment-grade sovereign, suffer higher funding costs and face no alternative but to merge if they are to survive and prosper, senior bankers say.
"The pressure is on," Oleg Vyugin, chairman of mid-sized MDM Bank and Russia's former financial market regulator, told Reuters. "Sberbank's funding costs two percentage points less than private banks'. They can cut lending rates at will."
Adds a source at a top-10 Russian bank: "What we are seeing is the creation of two superpower banks.
"Consolidation is inevitable. You have a bigger Sberbank and a monstrous VTB, so for other banks to compete successfully with them they too need to become bigger."
BIG, GETTING BIGGER
The only serious M&A going on in the Russian banking sector, however, involves the state-controlled banks as they seek a bigger slice of a national banking balance sheet that remains relatively small at 75 percent of GDP.
VTB recently bought 43 percent in TransCreditBank, controlled by the state railways, and is poised to win control over Bank of Moscow after the ouster of Moscow mayor Yuri Luzhkov put Russia's No.5 bank into play.
Closing the transaction is more or less a formality, and even though Alfa Bank, Russia's largest private bank by assets, expressed an interest in Bank of Moscow, it never had a look in.
VTB, the foreign trade bank of the Soviet Union, has built up an investment banking platform by acquiring talent, while Sberbank, the Soviet-era savings bank, is close to making a similar move by buying Troika Dialog, Moscow's oldest brokerage.
The privatisation of a 7.6 percent stake in Sberbank, worth over $5 billion at current market prices, is also planned for this year or next and could include a foreign placement.
"It's obvious from every principled point of view that the state banks should not expand," said Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington and an adviser to post-Soviet Russian governments.
"They are crowding out everything, buying other assets, rather than doing ordinary banking for big Russian companies."
NO COMPETITION, NO CREDIT
Russia's emphasis on bolstering its banks may backfire if their hunt for trophy acquisitions diverts them from extending credit to Russian borrowers and supporting economic recovery.
Central bank plans to raise minimum capital requirements for banks almost three-fold through 2015 are intended to pressure the minnows among Russia's 1,000 banks into merging, but with little result so far.
State banks account for between 50 and 60 percent of the overall banking system in Russia -- a share that is only likely to rise further, said Ekaterina Trofimova, director at Standard & Poor's ratings agency.
"In the private sector, apart from isolated deals, you can't see a trend toward mergers and acquisitions," she told Reuters.
The upshot is that Russia's banking sector, while it has cut its reliance on foreign funding below 15 percent of liabilities from pre-crisis levels of 23-25 percent and is thus more robust, still does a bad job of channeling capital to borrowers.
Low funding costs and loan rates ranging from 10-25 percent for good commercial borrowers through to consumer loans have kept spreads on lending in Russia extremely wide. That's good for banks, but not for borrowers, especially small businesses.
"What you need to do is use market discipline to create a more competitive banking system across Russia. It's easy to say, but more difficult to do," said Roland Nash, senior partner at fund manager Verno Capital in Moscow.
"Russia has been growing by 5.5 percent a year for a decade without having an efficient means of intermediating capital. Imagine the potential if they get that right."
(Additional reporting by Melissa Akin and Oksana Kobzeva)
(Editing by Sophie Walker)
NEW YORK - Earnings season shifts into high gear next week, and with nearly one-third of S&P 500 names set to post results, investors hope the news provides a catalyst to buy stocks and leave the market's recent weakness in the dust.
- The troubles at BlackBerry Ltd, which fired more than half its staff and lost more than 90 percent of its market value as consumers shunned its smart phones, might have spelled disaster for the company's hometown of Waterloo, Ontario. Instead, there are hot sports cars in the streets and new companies filling the refurbished office buildings. | Video
BEIJING/HONG KONG - China reiterated its opposition on Thursday to a European Union plan to limit airline carbon dioxide emissions and called for talks to resolve the issue a day after its major airlines refused to pay any carbon costs under the new law.