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ordinary shares) will remain in the state entity (the National Welfare Fund is run by the Ministry of Finance) and as the transfer structure undermines the sale at market price, that does not provide upside for ordinary share quotes.
Renaissance Capital noted on February 11 that the CBR would decrease the amount of foreign currency purchases off the market within the fiscal rule by the full amount of the deal in 3-7 years.
8.1.6 Bank news
Russia’s largest private bank Alfa Bank (Alfa Group of billionaire Mikhail Fridman) saw its net profit drop 1.8-fold to $704mn in 2019, making the first decline in net profit since 2014 when it suffered a 27-fold drop to $33mn. As reported by bne IntelliNews, in 2019 Alfa placed subordinated bonds to support the capital, but could come under pressure as the Central Bank of Russia prepares to step-up capital requirements on systemic banks. Alfa had to increase transfers to reserves for bad loans 2.5-fold in 2019 to $652mn, with most of the transfers accounting for 1H19 when reserves on the corporate credit portfolio jumped to $447mn to back several large creditors. To remind, 2019 Russian Investigative Committee has opened a new criminal case for the embezzlement of Alexey Khotin, the former owner of the Jugra Bank reportedly linked to the president of Belarus Alexander Lukashenko. This could have led to the spike in Alfa’s reserves, as the bank had a settlement deal with Khotin for $700mn, which was extended by another $590mn in January 2020, Vedomosti d aily reminded on January 20. Another $200mn of reserves in 2H20 were attributed to tighter regulations of retail lending, with retail loan portfolio soaring in 2019 by 72% to $10.4bn. Total Alfa’s loan portfolio in 2019 grew 30% to $40bn. Despite the bottom line hit, Alfa’s revenues jumped 1.5-fold to $1.03bn in 2019, in part supported by $324mn currency gain on ruble strengthening. Overall bank’s capital grew from $7.2bn to $8.1bn.
8.2 Central Bank policy rate
The Central Bank of Russia cut the key interest rate for the sixth time in a row by a minimum step of 25bp from 6.25% to 6% at the policy board meeting of February 7, the regulator announced.
As reported by bne IntelliNews, the decision was expected by the consensus (in Reuters, Bloomberg, and RBC surveys) as inflation keeps on trending at all-time low and consistently below the CBR targets.
The CBR commented that inflation was still predicted to arrive at 3.5-4% by the end of 2020 (from below 3% currently), in line with the 4% target.
Some reservations over further monetary easing were seen arising from the uncertainty from the new government, recently announced, additional social spending, and global concerns with the Coronavirus outbreak.
The CBR noted that additional social spending does not pose inflationary risks, while saying that the developments around Coronavirus will be closely watched for further monetary policy decisions.
The market is likely to be calmed by the CBR cutting the rate as expected, a
68 RUSSIA Country Report March 2020 www.intellinews.com
