- Industry shrinks 13 percent this year, 100 lenders disappeared
- Big private banks share the spoils of central bank purge
Russia’s central bank stripped three more banks of their licenses this week, bringing the total for 2015 to a record 100 as the country braces for a second year of recession.
The number of shuttered lenders represents 13 percent of the industry, the most in 15 years of data on the regulator’s website. Herman Gref, the head of Russia’s biggest lender, Sberbank PJSC, predicted last week that another 10 percent will lose their licenses next year.
The central bank is using the country’s economic crisis to rid the system of smaller players, many of which are facing losses that exceed their pre-provision income. The spoils of the sector’s consolidation have gone primarily to large private lenders, as Ukraine-related sanctions hobble state banks while foreign-owned institutions including Deutsche Bank AG and BNP Paribas SA scale back their operations in Russia.
“Even at the current rate, it is too slow,” Fitch Ratings Ltd. analyst Alexander Danilov said by phone from Moscow. “To speed up the process, they could consider raising capital requirements, which are currently absurdly low. It costs more to open a coffee shop in Moscow than a bank.” The minimum capital requirement in Russia is 300 million rubles ($4.2 million).
The top five private banks, including Otkritie Financial Corp. and Alfa Bank AO, controlled 12.5 percent of the market by assets on July 1, up from 8.4 percent at the end of 2013, Moody’s Investors Service analyst Elena Redko said in a report this month. Smaller lenders saw their share shrink to 18.9 percent from 23.4 percent.
Russia’s biggest private banks have gorged on assets, buying up weak lenders and using cheap central bank funding to take over poorly capitalized small banks. B&N Bank PJSC, the fourth-largest private bank, has tripled its consolidated assets since the end of 2013 through June, according to Moody’s.
On Monday, three more banks had their licenses revoked: Dil-Bank, KB Renessans and KBR Bank. They were ranked 222, 242 and 566 respectively, by assets, the regulator said in website statements.
The central bank is stepping up scrutiny of questionable practices some banks use to inflate capital cushions, Deputy Governor Vasily Pozdyshev said in November. Fitch’s Danilov estimates the top 100 banks control 90 percent of the industry’s assets, leaving the nearly 600 other banks with little meaningful business.
Russia has moved aggressively against weaker lenders while providing some relief from high borrowing costs. The key lending rate has dropped to 11 percent from 17 percent in December 2014, when the bank announced a surprise hike to support the free-falling ruble after oil prices plunged.
Although the ruble has weakened against the dollar since the start of the year, the central bank plans to cut rates further to spur spending after inflation slowed a third month in November to 15 percent. It continues to provide cheap funding to stabilize large banks, and Russia has handed out more than 700 billion rubles to 20 lenders as part of a bailout program.
“There is no banking crisis,” central bank governor Elvira Nabiullina said at a press conference after this month’s decision to keep rates on hold. “The banking system, like the economy on the whole, is going through a difficult time.”
Not everyone agrees.
“If every fifth bank bankrupt and more than 2 trillion in state assistance is not a crisis, then I don’t know what a crisis is,” Gref told reporters Tuesday.