Page 38 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
Table 2.6: Retail loans – bank share, 2005, 2006 (RUBbn, %)
Market share 2005 Volume 2006/H1 Retail loans YE 2005 % growth (RUBbn)
Source: CBR data and IFC calculations
The regions
Market share 2006/H1
2006/H1 % growth
All banks 100 Sberbank 44.6
Other big state-owned banks Consumer finance banks
Big private banks
Foreign banks
Other banks
91.3 1,522
100 28.6 36.7 18.9 4.0 52.2 8.7 20.8 7.6 37.1 3.8 26.1 39.2 37.5
79.6 559 3.4 184.8 61 9.3 135.9 133 7.1 137.0 116 3.8 194.9 57 31.8 57.7 596
Finally, the banking action is rapidly moving into the regions of Russia. Moscow dominates the economy and the Moscow-based banks are by far the largest, but it was the smaller banks in the regions making small loans to their local clients that were growing the most quickly by 2006. While Moscow-based banks still lead in areas such as foreign currency loans, the capital has seen its share of total ruble loan lending fall from 38% at the start of 2002 to just 25% by the middle of 2006, and this trend is continuing.
The banking sector also shows well the rising role of the regions in Russia's economy, as Moscow’s dominance is being eroded. While the total capital of banks based in Moscow dwarfs that of the regional players, the situation is reversed when looking at the volume of small credits made to private individuals. Here, Moscow-based banks have seen their share of the loans business fall from 41% as of 1 January 2002 to 25% as of the middle of 2006.
Thanks to all this good news, the CBR is starting to sound happy. In 2006, it issued one of its most upbeat annual ‘Review of the banking sector’ reports ever. The central bank predicted in the next few years Russia's economy can "expect to receive the large-scale capital investments it needs as Russia's banks finally begin to play the tradition role of financial intermediary."
The future role of banks
All this growth is good news for the Russian economy as it means banks are starting to fulfil their role as financial intermediators.
For most of the last 15 years companies have funded almost all their expansion from retail earnings; bank loans as a proportion of invested capital were stuck at about 4% of the total. More recently, companies have been making use of other forms of financing that have become available, such as the ruble bond market which reappeared in 2001 after being destroyed by the 1998 financial crisis.
However, analysts are predicting that 2007 will be the year that investment becomes a major economic driver and banks are playing a growing role in this process, but their ability to lend will be quickly capped by their lack of resources. The Russian bank sector remains highly fragmented and their customers who need loans to the order of several billion dollars dwarf even the biggest state banks.
Bank lending is growing much faster than the rise in assets: between 1999 and 2006 bank credits to non-financial institutions as a share of GDP rose from 13.8% to 25.3%. Following the 1998 crisis banks did not trust companies and lent mainly to related parties; however, in the last few years lending has becoming increasingly commercial as banks look for true customers.
The total domestic credits to GDP ratio is about 31%, which is still two-fifths of the average in Western Europe and suggests that unless the rate of growth of the last four years picks up signifi- cantly the saturation point is still some 15–20 years away.
However, for the first time in Russia's modern history, companies are looking to finance the bulk of their investment plans from debt rather than their own resources and want long-term credits on a large scale. This growing demand for credit has already led to a growing tide of Russian bank Eurobond issues and accounts for the increasing interest in IPOs.
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