Fitch Publishes 9M17 Russian Banks Datawatch


Fitch Ratings has published the latest edition of the "Russian Banks Datawatch", a monthly publication of spreadsheets with key data from Russian banks' statutory accounts.

Fitch notes the following key developments in the banking sector in September 2017:

In September, after the previous failure and bail-out of FC Otkritie, B&N bank experienced a significant liquidity squeeze and was rescued by the Central Bank of Russia (CBR), through the banking sector consolidation fund and without any losses for senior creditors. The new administration appointed in the banks by the CBR began provisioning their bad assets, resulting in a large combined RUB429 billion monthly net loss (RUB311 billion at Otkritie and RUB118 billion at B&N groups), which wiped out about a third of the sector's 9M17 profit. Fitch understands these provisions are not final and further impairment may be recognised in the future.

Apart from these issues, the sector was largely stable in September. Corporate loans nominally increased by RUB172 billion (0.5%), but after adjusting for 1% monthly rouble appreciation against the dollar grew by a higher RUB304 billion (0.9%). The largest FX-adjusted increases were reported by VTB (RUB158 billion, 3%), Gazprombank (RUB117 billion, 4%), Russian Agricultural Bank (RUB95 billion, 6%) and National Clearing Centre (RUB86 billion, 9%, all due to corporate reverse repo). The largest decreases were at Otkritie (RUB47 billion, 5%) and B&N (RUB49 billion, 15%).

Retail loans net of exchange rate movements grew by RUB161 billion (1.4%) more or less evenly among the banks. Of the specialised retail banks, Tinkoff, Home Credit & Finance and Rencredit grew by 2%-3%, while Joint Stock Company OTP Bank and Russian Standard were mostly flat.

Adjusting for rouble appreciation, customer funding decreased by RUB195 billion (0.4%), which was a net result of RUB269 billion outflow of corporate accounts (1.1%) and RUB74 billion (0.3%) inflow of retail deposits. The largest outflows of corporate accounts were at Sberbank (RUB116 billion, 1.9%), Otkritie (RUB62 billion, 10%), B&N (RUB52 billion, 23%) and National Settlement Depositary (RUB48 billion, 45%). The outflow at Alfa-bank (RUB70 billion, 6.2%) reflects planned repayment of USD1 billion Eurobonds, which are accounted as customer deposits under Russian legislation. Retail deposit inflows were more or less even across the sector in September.

State funding increased by RUB276 billion after adjusting for currency moves. This was a net result of repayments of RUB220 billion to the CBR, RUB99 billion to regional and federal budgets and RUB6 billion to other government funds, but borrowings of RUB601 billion from the Ministry of Finance (Minfin). VTB group was the main net taker of government funding in September (RUB323 billion, mainly from Minfin). The CBR injected RUB153 billion of liquidity into B&N compensating significant deposit outflows, but took out RUB351 billion from Otkritie (of the RUB729 billion provided to it in August), seeing its customer outflow moderating.

Sector liquidity is generally good, albeit unevenly distributed. Sberbank and most large private and foreign banks have liquidity surpluses as they have repaid the majority or all of CBR funding and as of 1 October kept RUB1 trillion on deposits with the CBR. However, some banks (excluding those rescued) are still reliant on expensive government funding, mainly VTB group (RUB1.6 trillion, 13% of group liabilities), Gazprombank (RUB0.6 trillion, 19%) and Rusag (RUB0.4 trillion, 11%), although all three had reasonable liquidity cushions. Some smaller banks have tight liquidity buffers, including Moscow Industrial Bank (5% of total assets, 6% coverage of customer accounts)

The sector reported a RUB356 billion net loss in September (4% of end-August equity), but excluding losses at Otkritie (RUB311 billion, 3x group's combined equity) and B&N (RUB118 billion, the group equity was already close to zero prior to rescue), sector net profit was a moderate RUB73 billion (annualised ROAE of 10%). However, 86% of this was earned by Sberbank (RUB62 billion, 24% annualised ROAE). A large loss of RUB15 billion was reported by Bank Rossiysky Capital, fully offset by an equity injection from Deposit Insurance Agency, which was a prerequisite for the bank's transfer to the Agency for Housing Mortgage Lending anticipated in 4Q17-1H18. Of the specialised retail banks Tinkoff outperformed other banks, reporting monthly profit equal to 7% of equity; OTP, Home Credit and Rencredit earned 1%-3%, while Russian Standard was break even.

Excluding Otkritie and B&N, sector capital ratios were stable. The 10 systemically important banks (excluding Otkritie) complied with current capital requirements including buffers. However, two banks need to improve some of their ratios in 4Q17 to remain compliant with the increased buffer requirements applicable from 2018 (systemic banks will need to have a core Tier 1 ratio of 7%, a Tier 1 ratio of 8.5% and a total ratio of 10.5%). These were Promsvyazbank (core Tier 1 ratio 6.5%) and Credit Bank of Moscow (core Tier 1 ratio 6.9%; already increased by about 120bp through an SPO).

Of the non-systemically important sampled banks (excluding failed and rescued entities and those not reporting capital ratios), four had capital ratios above the minimum capital requirements, but did not meet the regulatory buffers. These were Almazergienbank, UBRIR, Moscow Industrial Bank and Asian-Pacific Bank (APB). 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 license withdrawal. Uraltransbank was in breach not only of the buffer but also the Tier 1 capital requirement itself (reported ratio of 5.3% versus requirement of 6%). Fitch understands that both APB and Uraltransbank have agreed capital rectification plans with the CBR, with certain milestones to be achieved within the next few months, while their inability to meet these targets may result in regulatory intervention.

We estimate that at end-9M17 the capital buffers (excluding potential profits) of 23 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 five could absorb less than 1%. The latter are SKS-bank, Uraltransbank, UBRIR, Almazregienbank and Moscow Industrial.

The latest Datawatch is available at