VTB Group, Russia’s second-largest bank, will rebound from a four-year low after the stock price fell below the lender’s book value, Chief Executive Officer Andrey Kostin said.
Global depositary receipts of VTB dropped to the lowest price since 2009 in London yesterday after Moody’s Investors Service said that profitability of Russian lenders will decline this year and in 2014 amid slower economic growth and rising bad debt, while Standard & Poor’s said the loan portfolios of banks will probably deteriorate. The price-to-book ratio of VTB’s stock in Moscow is at 0.6, less than half the average 1.44 for financial stocks in the MSCI Emerging Markets Index.
“The current price is irrational,” Kostin said in an interview yesterday on the sidelines of the Asia-Pacific Economic Cooperation forum in Bali. “Certainly VTB can’t cost less than book value. At some point this will improve. That’s why I’m not too worried.”
VTB added 0.6 percent to $2.635 by 3:32 p.m. today in London. A “pessimistic” view of the banking sector and a “not very positive view of Russia, given slowing economic growth,” are fueling the stock’s decline, Kostin said.
Banks will face “challenging” conditions through 2014, with problem loans set to surpass 10 percent of total lending in the next 12 to 18 months, from about eight percent at the end of 2012, Moody’s analysts Eugene Tarzimanov and Yaroslav Sovgyra said in an e-mailed report yesterday. Lending growth will slow to as little as 10 percent this year and next, from 20 percent in 2012, with the corporate market “particularly sluggish,” they wrote.
“Retail lending was considered to be the engine for growth, the source of relief for banks,” Andrey Klapko, an analyst at OAO Gazprombank in Moscow, said by phone yesterday. “The macroeconomic situation isn’t supporting this.”
Russia is struggling with the slowest economic growth since a 2009 recession. The World Bank reduced its forecast for expansion in 2013 to 1.8 percent last month from 2.3 percent previously. Net capital outflow reached an estimated $12.9 billion in the third quarter, compared with $7.9 billion in the same period a year earlier, according to the central bank.
JPMorgan Chase & Co. cut VTB to a neutral rating last month and lowered its earnings estimates. While second-quarter profit missed analysts’ projections, VTB maintained its full-year forecast of 100 billion rubles ($3.1 billion). OAO Sberbank’s “robust fundamentals” make Russia’s largest lender JPMorgan’s favorite stock within the nation’s financial shares.
“Sberbank is on track for full-year 2013 guidance, whereas VTB surely cannot make its management guidance for 2013,” Julian Rimmer, a trader with CF Global Trading UK Ltd. in London, said by e-mail yesterday.