Page 35 - IFR Opportunities in Russian capital markets

CHAPTER02
ifrintelligence reports/Opportunities in: Russian Capital Markets
The Kremlin has been debating introducing a mega-regulator to unite responsibility for all these sectors for years. At the time of writing the prospects for the appearance of a mega-regulator were improving as the state begins to unite competing regulatory authorities.
The most advanced example is the move to create a central depository. At the start of 2007 two companies, the Depository Clearing Company (DCC) and the National Depository Company (NDC), were responsible for clearing and settling trades on the two main stock exchanges: the Russian Trading System (RTS) and the Moscow Interbank Currency Exchange (MICEX).
Custodians have long been calling for the two companies to be united, which would save money and reduce unnecessary counterparty risks, but the initiative got caught up in a turf war between the two exchanges, as the DCC is owned by the leading market participants on the Russia Trading System (RTS), whereas the NDC is majority-owned the CBR, which is unwilling to give up this informal mechanism of supervising the stock market.
However, at the time of writing it looked increasing likely the two companies would be united. Once this battle is out of the way, the state will move on to similar battles to unite the other regulatory bodies. It will probably take years (if it is completed at all), but it is clear the liberals in the government are pushing hard to simplify the regulatory system.
Bank sector growth
All these reforms have paid dividends. The process is far from over, but at the end of November German Gref said that Russia's banking sector was approaching an optimum position.
Bank sector assets grew by 39% in 2006 and are expected to rise by another 35% in 2007, according to Troika Dialog. Banks' capital as a proportion of GDP has risen steadily from 39.8% in 1999 to 45.1% at the end of 2006; however, both this share of GDP and the absolute total banking sector capital of US$463bn as of 1 October 2006 mean the Russian banking sector remains small by inter- national standards.
Retail lending remains the engine of growth; sector-side retail lending growth was 85% in 2006 and is expected to end 2007 up 65%. On the liability side, strong economic growth led to corporate deposits rising by 35% in 2006 and these are expected to rise another 32% in 2007, according to Alfa Bank.
But it is consumer lending growth that is really on fire. Russia’s retail loan market grew by 91% year-on-year to US$78.4bn, or 8% of GDP, by the end of 2006 and is expected to hit 10.2% of GDP by the end of 2007, according to Alfa Bank.
This segment also became highly specialised last year, with mortgage and car loans now accounting for 27% of total retail lending. Their share in 2004 was just 15%. Consumer loans have more or less doubled every year since Bank Russky Standart (Russian Standard Bank) pioneered the idea of small express unsecured credits in 1999.
There is no sign of a slow-down as it is clearly still very early days. Loans to households are only 4% of GDP, compared to 10–20% in the Central European countries and about half in Western Europe, as shown in Figure 2.3. Sberbank's researchers believe that the amount of consumer loans will have increased 4.2-fold by the end of 2012 to a total of RUB9trn (US$345bn).
Consumer credit
While the pace of growth of consumer credit began to slow in 2006, this was simply because Russians were switching to new forms of borrowing. The share of personal loans – loans provided for unspecified purposes – dropped from 70–75% in 2004–05 to 60% in the first half of 2006 and this trend is expected to continue, albeit more slowly.
Likewise, the banks are beginning to specialise; in the 1990s all banks aspired to being universal banks, but in the last two or three years a group of specialist retail banks have emerged to claim a significant part of the consumer finance business – none of which are state-owned. Commercial banks commanded 83% of the consumer finance business (as opposed to personal loans) by July 2006 (see Table 2.2).
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