Foreign-controlled banks were overrepresented among Russia’s unprofitable lenders last year, according to the country’s regulator.
Of the 48 banks the ended the year with losses, 13 -- or more than a quarter -- are majority-owned by foreigners, Russian central bank Deputy Chairman Mikhail Sukhov told reporters today in Tula, about 100 miles south of Moscow. More than 100 banks are controlled with foreign capital, he said. Russia has 896 banks, according to Sukhov.
A unit of Austria’s Raiffeisen Bank International AG (RBI) is one of a handful of foreign banks, along with France’s Societe Generale SA (GLE) and America’s Citigroup Inc. (C), that have prospered in Russia retail banking as state-run OAO Sberbank (SBER) and VTB Group increase market share. HSBC Holdings Plc (HSBA), Barclays Plc (BARC) and Banco Santander SA (SAN) are among international lenders that abandoned consumer banking over the past two years.
“There is a certain group of banks that aren’t developing their business in Russia,” Sukhov said. “Compared with their parent companies’ operations, the losses are kopeks. But most likely, these banks are in a waiting mode. And while not all have plans to sell, the negative financial results are an additional drain.”
The Micex Financials Index (MICEXFNL) of six stocks fell 4.4 percent last year, while the broader Micex Index (INDEXCF) advanced 5.2 percent, according to data compiled by Bloomberg. That compares with a 23 percent advance for the Bloomberg Europe Banks and Financial Services Index.
Some international lenders may start looking to sell their comparatively small Russian businesses to reduce risk-weighted assets as banks prepare for new capital regulations, known as Basel III, according to Sukhov.
Bank Rossii warned in 2011 that it may limit operations between Russian lenders and their overseas parents if they were deemed to pose a danger to the liquidity of the financial system. The entire eastern European banking industry was in danger of a cash crunch at the time as western European banks withdrew money from their subsidiaries, International Monetary Fund Managing Director Christine Lagarde said.
While Russia’s traditional sources of foreign bank capital are retreating, Asian banks are more actively expanding their presence in the country, Sukhov said. More than one new bank will be established by lenders not based in Europe or the U.S. this year, according to Sukhov.
“We’re witnessing a broadening of the geographic scope of Asian banks, and not just Asian banks, in our banking sector, he said.
Russia, which holds the rotating Group of 20 presidency this year, needs to grant the central bank additional supervisory powers to regulate the industry, the International Monetary Fund said in a report yesterday. While profit in the sector topped 1 trillion rubles ($33 billion) for 2012, the regulator is unsure why lending to companies slowed so rapidly in the final months of the year, First Deputy Chairman Alexey Simanovsky said last week.
Corporate lending growth will probably expand 16 percent to 18 percent this year, Sukhov said. The capital adequacy ratio for Russian banks will probably be between 12 percent and 14 percent this year, according to Mikhail Kovrigin, deputy head of the central bank’s oversight department.
Lenders are working to boost profitability by reining in costs, including for personnel, Sukhov said. Putting more emphasis on earnings from commissions, rather than more volatile interest income, would also help bottom lines, he said.
Workers in Russian banks are three to four times less effective than their colleagues in the west based on the amount of assets they manage relative to headcounts, Sukhov said. Bankers were paid 604 billion rubles in 2012, up from 528 billion rubles in 2011, according to preliminary data before accounting for taxes, he said.
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