Sberbank offices in Moscow (Photo by: MosNews)
Russia Blog has received another contribution from our reader Vladimir Kuznetsov, director of equity financing at the Finam Investment Company in Moscow. In this blog post, Mr. Kuznetsov analyizes the latest numbers from Merrill Lynch and the Russian Central Bank concerning the state of Russia's banking sector. As in the other major emerging markets, Russian banks are growing at a phenominal pace, but the consumer credit system has yet to fully mature and there are some non-performing bad loans. Mr. Kuznetsov concludes his piece by noting that Russian stocks are beginning to bounce back from the worldwide correction two weeks ago.
The latest reports on the Russian banking sector reveal some major pros and cons. On the positive side is a recent Merrill Lynch report declaring Russia's banking sector to be the most attractive option for international investors among the BRIC (Brazil, Russia, India, China) developing countries. Russian banks look the most promising in the mid-term and are projected to have the highest acceleration of credit and other services. Kommersant quotes the Merrill Lynch report's findings that Russian banks have the lowest cost to revenues ratio (40%) in BRIC, while Brazil has 47% and India 49% .
The Merrill Lynch report also points to extremely high administrative barriers for entering the banking sector as a major obstacle to foreign banks opening branches in Russia. Currently, only 18% of Russian adults have bank accounts, compared to 28% in Brazil and 50% in Turkey.
Click on the extended post to read more.
Vneshtorbank (VTB) logo
Another interesting fact is the consumer loans issue. This piece of the puzzle is also more on the negative side. The amount of consumer loans issued in Russia doubles every year, but in past several months we have heard a lot of advice to Russian banks to raise their credit standards due to the amount of non-performing loans. A few days ago the Russian Central Bank released data revealing that the three biggest lenders in the domestic Russian market - Russian Standard, Rosbank and Home Credit and Finance Bank - have the highest levels of bad debt. Their outstanding debts increased from 6.3 billion rubles ($240.571 million) to 21.9 billion rubles ($836.272 million) in 2006, or from 2.7% to 4.2% of total credit issued to individuals.
VTB sign on a building near Kutuzovsky Prospekt in Moscow
Russian Standard and Home Finance account for 80% of all overdue credit in the country, according Interfax. Last year the aggressive credit police who work for these banks were astonished to see Russians form long lines in supermarkets to receive their applications for consumer credit. Unfortunately, most consumers who signed up did not notice the 49% interest rates on these loans that were listed in the fine print at the end of the applications. Now, the collections bell tolls for them, and many consumers are faced with calls from the collection agencies that are widely used by these banks. It is interesting to note that there are not so many consumer debt collection agencies, but their services are in high demand now. These developments have resulted in the tightening of credit requirements by some banks. The first to toughen lending standards was Vneshtorbank 24, which announced a halt to providing express credit on Visa instant issue debit cards with permitted overdraft. Several other banks are likely to follow VTB24's example.
Russia Top Destination for EBRD Investment
European Bank for Reconstruction and Development President Jean Lemierre announced during his visit to Kazan that Russia received 38% of all of the bank's investment in 2006, up from 26% in 2005. This is a 72.7% increase with the total number amounting to â‚¬1.9 billion ($2.5 billion). 75% of this investment capital went to Russia's regions, with the rest going to Moscow and St. Petersburg. The bank tripled its investments in shareholder equity in Russia (buying shares of companies such as JSC Concern Sitronics and the airline Sky Express). EBRD doubled its staff in Moscow in 2006, and three new offices in Russia are planned for this year.
Russian Stocks Rebound
Finally, after the recent global correction sparked in China, good news from the stock market!
Total trading on the MICEX exceeded $1.5 billion on March 12, breaking all previous records for the exchange. Russian equity traders saw a renewed "energy frenzy", with stocks for RAO UES and other power generating companies soaring from 6% to 15%.