October 10, 2017 / 8:02 AM / 9 months ago

Fitch Publishes 8M17 Russian Banks Datawatch

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Russian Banks Datawatch 8M17 - Excel File here MOSCOW, October 10 (Fitch) Fitch Ratings has published the latest edition of its Russian Banks Datawatch, a monthly publication of spreadsheets with key data from Russian banks' statutory accounts. The publication includes: - Balance-sheet numbers as of 1 September 2017, as well as changes during August 2017 and since 1 January 2017. - Charts illustrating balance-sheet changes in 8M17 for the main state-related, privately owned, foreign-owned and retail banks. Fitch notes the following main developments in the banking sector in August 2017. The Central Bank of Russia (CBR) announced the rescue of bank FC Otkritie through the banking sector consolidation fund. This followed significant liquidity outflows from the bank, triggered by it not meeting rating requirements to retain deposits from pension funds and state entities, and the negative media coverage that followed. Otkrytie's demise had a knock-on effect on B&N Bank, which also experience deposit outflows in August-September and was rescued by the CBR. Failures even of such large banks as Otkritie and B&N are not indicative of a systemic crisis, as their combined market share is only 5% and contagion has been limited due to the CBR not imposing any deposit freezes or bailing in senior creditors. However, some flight to quality may still occur, which coupled with the continued CBR sector clean-up may result in similar cases. Excluding Otkritie and B&N, the banking sector was broadly stable in August. Corporate loans nominally decreased by RUB30 billion (0.1%), but grew by RUB123 billion (0.4%) after adjusting for a minor 1% rouble appreciation against the dollar. The largest falls were in Otkritie (RUB234 billion, 23%, related mainly to unwinding of reverse repo transactions) and B&N (RUB83 billion, 20%). Some of these could have been refinanced through the National Clearing Centre (NCC), which reported a significant RUB304 billion (47%) increase in corporate reverse repo transactions. There was good foreign-exchange-adjusted corporate loan growth at Sberbank (RUB59 billion, 0.5%), Promsvyazbank (RUB31 billion, 4.7%), Alfa-Bank (RUB32 billion, 2.3%) and Gazprombank (RUB30 billion, 0.9%). Retail loans net of exchange movements grew by RUB184 billion (1.6%). The growth was mainly in state banks, Sberbank (RUB73 billion, 1.6%) and VTB group (RUB47 billion, 2.1%). Among retail banks, Tinkoff Bank, Rencredit, Home Credit and Finance Bank and OTP Bank grew by 2%-4% while Russian Standard Bank was stable. Adjusting for exchange-rate movements, customer funding increased by RUB94 billion (0.2%), of which RUB61 billion was corporate funding (0.2%) and RUB33 billion (0.1%) was retail deposits. Otkritie reported a RUB235 billion outflow of customer funding (12% of end-July liabilities), of which RUB150 billion (28% reduction) were retail deposits and RUB86 billion (15%) corporate accounts, B&N's corporate accounts were broadly stable, while retail deposits decreased by RUB21 billion (3.5%). Considerable outflows of corporate accounts were reported by Sberbank (RUB121 billion, 2%, partially offsetting the RUB350 billion increase in July) and Gazprombank (RUB113 billion, 4%), while strong inflows were seen at Russian Agricultural Bank (RUB62 billion, 6%, Rusag), Alfa (RUB73 billion, 7%), NCC (RUB82 billion, 21%) and Promsvyazbank (RUB63 billion, 11%). August's retail deposit inflow was more or less even across the sector. State funding increased by RUB794 billion, of which the bulk (RUB728 billion) was raised by Otkritie from the CBR to compensate its funding outflows (in addition to the RUB235 billion deposit withdrawals, its interbank and non-CBR state funding decreased by RUB118 billion and RUB51 billion, respectively, following other significant outflows in July). Sberbank also increased deposits from the finance ministry by RUB159 billion. Sector liquidity, although overall healthy, is unevenly distributed. Sberbank, some large private banks and foreign banks have liquidity surpluses, as they have repaid most or all CBR funding and as of 1 August kept RUB1.2 trillion on interest-bearing deposits with the CBR, which has also been issuing bonds to absorb excess liquidity from them. However, some large banks are still reliant on state funding, including state-owned VTB, Gazprombank and Rusag, accounting for 55% of the RUB3.8 trillion outstanding, although all three have reasonable liquid cushions. Otkritie became the largest user of state funding among private banks with RUB1.1 trillion outstanding at end-August (48% of liabilities). Considerable government borrowings were also reported by Credit Bank of Moscow together with its subsidiary SKS Bank (RUB95 billion), Alfa (RUB57 billion) and B&N (RUB43 billion). The sector reported a modest RUB39 billion net profit in August (annualised ROAE of 5.3%). The largest loss of RUB32 billion (20% of end-July equity) was reported by Otkritie due to impairment of securities, presumably as it reportedly overvalued its holdings of Russian sovereign Eurobonds. Alfa also posted a RUB15 billion (6%) loss due to loan impairment reserves (due to more conservative regulatory provisioning of few exposures by 45%, compared with 18% in IFRS) and currency revaluation. Sberbank once again outperformed, earning RUB61 billion (24% annualised ROAE). Among specialised retail banks, Tinkoff, Rencredit, OTP Bank and Home Credit posted good profits equal to 1%-4% of equity, while Russian Standard lost 1% of equity. The sampled banks' average capital ratios improved by 30bp thanks to the rouble appreciation and internal capital generation compensating lending growth. Otkritie complied with regulatory ratios (although not with buffers), but this is likely to be temporary, as the CBR has not yet determined the extent of asset impairment - provisionally estimated at RUB250 billion-RUB400 billion - and hence provisioning needs. The other 10 systemically important banks, including CBOM, which was designated a domestic systemically important bank in September, complied with capital requirements, including buffers. Five of the sampled non-systemic banks (excluding failed and rescued banks and those not reporting capital ratios) had capital ratios above the minimum capital requirements, but did not meet the regulatory buffers. These were UBRIR, Moscow Industrial Bank, Almazergienbank (which expects to receive capital support from the Republic of Sakha in 2Q18), VTB24 (likely to receive capital from VTB) and Asian-Pacific. An inability to meet buffer requirements by the end of the quarter could lead to limitations on dividend payments, but would not represent grounds for a licence withdrawal. In addition, Uraltransbank was still in breach of the minimum Tier 1 capital requirement itself (reported ratio 4.8% at end-August compared with a minimum of 6%), which may result in regulatory intervention if not rectified. We estimate that at end-8M17 capital buffers (excluding potential profits) of 20 of the sampled banks (excluding failed and rescued banks, and those not reporting capital ratios) were sufficient to absorb potential losses equal to less than 5% of loans (based on minimal capital requirements) and four could absorb less than 1%. The latter were Almazergienbank, SKS-Bank, Uraltransbank and UBRIR. 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