Page 31 - IFR Opportunities in Russian capital markets

CHAPTER02
ifrintelligence reports/Opportunities in: Russian Capital Markets
The capitalisation of the banking sector increased by RUB224bn (US$8.6bn) in 2006 and the assets of the sector were up by RUB3.6trn to RUB13.4trn – that is, by 37% year-on-year. And Russia's 30 largest banks increased their net profit 42% on the year in 2006 to RUB279.7bn (US$10.7bn) rubles as of 1 January 2007.
At the end of 18 months of frenetic acquisitions in the bank sector, the number of financial organ- isations with 100% foreign capital increased from 41 to 52 in 2006 and the number of financial or- ganisations with some foreign capital in their equity increased by 136 to 153. Among the most significant banks, foreigners bought or bought into Rosbank, Impexbank, Promsvyazbank and the Bank of Moscow.
Table 2.1: Russia's top 30 banks, as of September 2006 (US$)
Bank Assets (US$bn)
1 Sberbank 109.3
2 Vneshtorgbank 27.8
3 Gazprombank 19.1
Profit before taxes (US$m)*
1,865 433 507 129 79 195 26 111 104 91 48 262 104 122 22 111 43 30 22 6 34 50 19 10 38 15 19 16 7 8
4 Bank of Moscow
5 Alfa Bank
6 UralSib
7 Rosbank
8 Raiffeisen
9 International Moscow Bank
10 MDM
11 Rosselkhozbank
12 Russky Standart
13 Promstroibank
14 Promsvyazbank
15 Citibank
16 Petrokommerts
17 Homos-bank
18 Ak Bars
19 VTB–24
20 MPB
21 Zenit
22 Transkreditbank
23 ING Bank Eurasia
24 Impexbank
25 Vozrozhdeniye
26 Khanty-Mansiisky Bank
27 BIN-bank
28 Globex
29 MBRR
30 Soyuz
Ruble figures converted into dollars
*Latest figures available
Source: Interfax Center for Economic Analysis
Bank reform
11.3 9.7 9.5 7.8 6.5 6.3 5.9 5.5 5.0 4.9 4.7 4.6 3.6 3.2 3.1 3.0 3.0 2.8 2.3 2.2 2.2 2.1 2.0 2.0 2.0 1.8 1.8
The replacement of CBR governor Viktor Gerashchenko with Sergei Ignatyev in May 2002 marked the turning point for Russia's bank sector. Gerashchenko, a former Soviet-era Gosbank apparatchik, simply tried to avoid a crisis, while banks got rich from speculating against inflation or in government bonds. Ignatyev began the process of supervising the sector and making the prudential rules stick.
2004 mini-crisis
The CBR's efforts to reform the bank sector have been multifaceted, but it started by stamping out the rampant reporting of ‘virtual capital’ in the sector. In an effort to win custom, banks regularly artificially inflated their capital by making soft loans to related party companies that would then buy shares in the bank. The result was the amount of cash in the bank remained the same, but the bank’s capital was increased by a fresh injection of capital into its equity. At the height of this scam in 2002–03, about a quarter of the Russian banking sector’s capital was thought to be make-believe.
The CBR has countered, by first forcing banks to reveal their ownership and Ignatyev actually started closing banks for breaking the rules in 2004, sparking a mini-banking crisis.
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