Russia's top eight brokerages pass central bank stress tests

MOSCOW (Reuters) - Stress tests of the eight largest brokerage companies in Russia have proved their resilience to possible shocks, although many smaller players are struggling to survive, a central bank official told Reuters.

FILE PHOTO: Larisa Selyutina, Director of Securities Market and Commodity Market Department of the Bank of Russia, attends an interview with Reuters in Moscow, Russia September 24, 2019. REUTERS/Elena Fabrichnaya

To try to improve confidence in an industry dogged by bad loans and complex cross-shareholdings, Russia’s central bank has shut down hundreds of banks and brokers that provide access to financial markets for individual investors.

“We have checked the results of stress tests of the eight largest brokers. All the players have successfully withstood shock events envisaged in stress scenarios,” Larisa Selyutina, head of the securities and commodity markets department at the central bank, said in an interview.

Selyutina did not say which brokers were checked, nor the criteria used.

Russia's largest brokers by turnover are Region, BCS, Renaissance Broker, FC Otkritie, UNIVER Capital, ATON, VELES Capital and FINAM, as well as units of VTB VTBR.MM and Gazprombank GZPRI.MM, according to the Moscow Exchange.

The largest by client numbers are Sberbank SBER.MM, Tinkoff Bank TCSq.L, VTB, BCS, FINAM, FC Otkritie, Alfa Bank, ATON, Freedom Finance FRHC.O and ALOR+.

In some cases, brokers in Russia have to carry out their own stress tests, but in general they are not obliged to report results to the central bank, and the regulator has no immediate plans to change that, Selyutina said.

But the central bank wants to see quality risk management and will impose mandatory risk controls if needed.

“This is your choice, we tell the brokers. Either you organize a quality risk management system yourself, or we do it,” Selyutina said.

“If players want supervision to be more of a consultative nature rather than punitive, they have to follow the recommendations and not wait until they are transformed into a regulatory act.”

Since 2015, 632 brokers have lost licenses in Russia, mostly for violating laws and due to tougher regulations, more than halving their numbers to a little more than 500 as of mid 2019.

Competition is also driving numbers down, as bigger companies can afford to invest in their product lines and better services, Selyutina said.

As a result, more than a half of 345 smaller companies on the Russian market are not profitable, she added.

At the same time, the client base for Russian brokerages is expanding. It has now reached three million, in a country of 147 million people, as Russians look for more attractive returns on their investments than low-yielding bank deposits.

“Our market is not that large and it is already starting to regulate itself. The strongest do survive,” Selyutina said.

Writing by Andrey Ostroukh; Editing by Katya Golubkova and Mark Potter