17:25 - 6.04.2018

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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.

The publication includes:

- Balance-sheet numbers as of 1 February 2018, as well as changes during February 2018 and since 1 January 2018

- Charts illustrating balance-sheet changes in 2M18 for the main state-related, privately owned, foreign-owned and retail banks

Fitch notes the following key developments in the banking sector in February 2018.

Sector corporate loans grew RUB208 billion (0.6%) adjusting for 1% rouble appreciation against the US dollar in February. The largest FX-adjusted increases were reported by VTB group (RUB110 billion, 1.8%), Rusag (RUB32 billion, 2%), Alfa (RUB23 billion, 1.7%) and National Clearing Centre (RUB85 billion, 9.3%, all due to reverse repo). Conversely, a notable decrease was shown by Credit Bank of Moscow (RUB87 billion, 5.5%).

Retail loans net of currency movements grew RUB89 billion (0.7%). Of the specialised retail banks, Tinkoff, OTP and Rencredit grew 1%-2%, Home Credit Bank was roughly stable and Russian Standard deleveraged by about 4%, probably due to write-offs or sales of bad loans, as the decrease was largely of overdue loans.

Adjusting for rouble appreciation, customer funding (excluding deposits from state entities) decreased RUB96 billion (0.2%), which was a net result of a RUB463 billion (1.9%) outflow of corporate accounts and a RUB367 billion (1.5%) inflow of retail deposits. The largest outflows of corporate funding occurred in state banks: at VTB group by RUB271 billion (5.6%), at Gazprombank by RUB140 billion (4.6%) and at Sberbank by RUB112 billion (1.9%). However, these were mostly reversals of the banks' strong January inflows of respectively, RUB277 billion, RUB340 billion and RUB109 billion. Retail deposits grew mainly in state banks (82% of the monthly increase), of which Sberbank reported the biggest growth of RUB230 billion (2%).

State funding decreased RUB194 billion, as repayments of RUB186 billion to the Central Bank of Russia (CBR) and RUB77 billion to the Ministry of Finance (Minfin) were partially offset by borrowings of RUB67 billion from other government entities and RUB2 billion from regional and federal budgets. The largest net repayments of government funds were made by FC Otkritie, which paid down RUB180 billion to the CBR from previous recapitalisation proceeds, and by Gazprombank returning RUB95 billion to Minfin.

The sector liquidity surplus (which we asses as liquidity banks keep on deposits with the CBR) was RUB2.4 trillion at end-February, down from RUB2.7 trillion at end-January and from a peak of RUB3.5 trillion during the month. The spike and subsequent contraction largely mirrors volatility of corporate funding in state banks and the repayment of state funding by FC Otkrytie, which had kept some of its recapitalisation proceeds with the CBR. Deposits at the CBR are mainly placed by Sberbank and foreign banks, while some other big banks remain reliant on government funding amounting to RUB5.9 trillion (excluding Sberbank's RUB0.5 trillion sub-debt from the CBR) at end-2M18. Of this, RUB1.2 trillion was provided to three large rescued banks and their subsidiaries (RUB0.5 trillion in Otkriite, RUB0.3 trillion in B&N group and RUB0.4 trillion in Promsvyaz), while the remaining RUB4.7 trillion (predominately from Minfin, budgets and other government entities) was mainly in VTB group (RUB1.8 trillion, 17% of total liabilities), Gazprombank (RUB0.6 trillion, 13%) and Russian Agricultural Bank (RUB0.4 trillion, 15%).

The sector reported a RUB79 billion net profit in February (11% annualised ROAE), but excluding RUB26 billion of losses in the rescued banks (RUB3 billion in Otkritie group and RUB23 billion in B&N group), the sector profit was a higher RUB105 billion (14% annualised ROAE). Sberbank earned the bulk of this (RUB64 billion, 22% annualised ROAE). A considerable, largely impairment-driven loss was reported by Moscow Industrial Bank (RUB3.5 billion, 16% of end-January equity), although it was fully compensated by material aid from shareholders. Among specialised retail banks, Tinkoff and Rencredit reported sound monthly profits with annualised ROE 37%-38%, while OTP, Russian Standard and Home Credit had ROAE in mid-single digits.

The sector average capital ratios were broadly stable as moderate lending growth was compensated by internal capital generation; the average Core Tier 1 ratio was 8.7% (10% excluding banks under CBR rehabilitation), the Tier 1 ratio was 9.3% (10.6%) and the Total Capital ratio was 13.2% (14.6%). The minimum requirements (including buffers) for systemic banks are, respectively, 7.025%, 8.525% and 10.525%, while other banks need to achieve 6.375%, 7.875% and 9.875%. Compliance with minimal capital ratios is required on a stand-alone basis daily, while maintenance of capital buffers is required on a consolidated level by the end of each quarter. Inability to meet buffer requirements on a consolidated level by the end of the quarter could lead to limitations on dividend payments, but would not represent grounds for a licence withdrawal.

All nine systemically important banks (excluding the two rescued ones) had their stand-alone capital ratios above the minimum requirement, with sufficient headroom to be able to comply with conservation and systemic importance buffers on a consolidated level. Gazprombank and Rosbank reported rather tight stand-alone Tier 1 ratios of 9.2%; however, Gazprombank's ratio should improve by about 60bp-70bp after the auditing of 2017 profit, while Rosbank's consolidated ratio should be higher owing to the bank's well-capitalised subsidiaries.

Five sampled non-systemic banks (excluding failed lenders and those not reporting capital ratios) had capital ratios above the required minimum, but would have needed to improve them to comply with buffers by end-1Q18. These were Moscow Industrial Bank, UBRIR, Roscap, Asian Pacific and Rencredit, with the latter's ratios above requirements plus buffers, including non-audited profit for 2017. Uraltransbank remained in breach not only of the buffer but also of all three minimum capital ratios, which could result in regulatory intervention.

We estimate that at end-2M18 the capital cushions (excluding potential profits) of 18 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 minimum capital requirements excluding buffers) and Moscow Industrial could absorb less than 1%.

The latest Datawatch is available at www.fitchratings.com or by clicking the link.