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15th BACEE Country and Bank Conference 14-16 November 2006, Budapest. THE RUSSIAN BANKING SYSTEM. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest. Russian banks’ major indicators (end-period).

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slide1
15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

THE RUSSIAN BANKING SYSTEM

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Russian banks’ major indicators (end-period)

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Penetration (in % of GDP), end of period

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Existing banks vs. Liquidated banks (31.08.2006)

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

The smallest Russian banks as of 31.12.2005

3 of these banks were closed during the last 11 months, 7 survived, 4 out of 10 accepted to the deposit insurance system

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Even in the ”elite group” there are more than 300 banks

> 850 banks join the deposit insurance system in the first round

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Market share of different groups of banks/1

31.07.06

01.01.05

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Market share of different groups of banks/1

01.01.05

31.07.06

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Market share of different groups in total number of banks/1

(classified by authorised capital)

31.12.2005

31.12.2004

Total:1,229

31.08.2006

Total:1,253

Total:1,211

At the end of August 2006 about one-fifth of Russian banks had registered authorised capital over RUR 300 M

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Market share of different groups of banks/2

01.01.05

31.07.06

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Market share of different groups of banks/2

01.01.05

31.07.2006

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

  • Sberbank is a banking system itself. The rest is very fragmented, ripe for consolidation.
  • Options:
  • Closure of a number of very small banks
  • M&A in all groups through creation of banking groups,
  • amalgamation and takeovers.
  • Limitations: fragmented ownership structure, vested interest
  • Drivers of consolidation: decrease of profitability from core operations, high supervisory costs (incl. IFRS), high IT costs. M&A: Nikoil/Uralsib, Rosbank OVK, VTB/Guta, etc.
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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Overweight of Sberbank: share in private deposits

1 January 2006

Sberbank’s share slightly decreases over time, but jumps back after each crisis

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Russian banks: Branches/1

Russia overbanked, underbranched

Most of Sberbank’s branches closed down were replaced by other banks’ new branches

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Russian banks: additional offices and cash points

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Russian banks: Branches/2

(as of 31 July 2006)

Most Russian banks have no branches at all (except for HQ)

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

  • Banking reform in Russia: key initiatives
  • Individual deposit insurance system (in place from mid-2005)
  • IFRS
  • Adjustments in, and reenforcement of key regulatory measures – i.e., capital,
  • liquidity, loan loss provisioning
  • Credit bureaus
  • Legal basisfor mortgage lending and mortgage refinancing
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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

  • Deposit Insurance System
  • Highlights:
  • 100% coverage of deposits up to RUR100,000 (approximately $3,000), 90% another
  • RUR 200,000
  • Government guarantee to Sberbank depositorsabolished in Oct. 2004
  • Quarterly insurance premiums of 0.15% of retail deposits
  • At the end of 2005, 930 banks are members
  • Effects on the banking system:
  • Increased stability of retail deposit base
  • A more level playing field between Sberbank and other banks
  • Funding costs unlikely to rise
  • Major concerns
  • Quality of bank supervision still weak
  • Large number of marginal banks remain
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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

  • 2004 market turbulence: major reasons
  • Low level of confidence in Russian banks by households and corporates
  • Shallow and fragmented interbank market
  • Mismatch between shorter-term liabilities and longer-term assets
  • Drop in securities prices since mid-April
  • Tougher supervision – greater commitment of regulators to end improper banking
  • practices
  • Expectations of a drastic clean-up of the banking industry on the threshold of the
  • deposit protection system
problems with large number of small banks
15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Problems with large number of small banks
  • Supervisory risk (small banks may be supervised less efficiently than ”systemically important banks”)
  • Fragmentation of markets, distorted movement of capital/funds within the region and throughout with efficiency, product range
  • Expensive IT/risk management solutions not accessible to smaller banks
  • Compliance risk

Why smaller banks are needed in Russia?

  • Geographical and political reasons (subjects of Federation, distances, vast area to be covered)
  • Better knowledge of local conditions/clients
  • Funds more unlikely to leave the regions
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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

  • Foreign investments low, but growing
  • 42 bank controlled by foreigners (stake over 50%), 48 fully foreign-owned
  • Growth of direct investments focusing on retail banking, mortgages
    • GE Consumer Finance buys consumer bank, Delta Bank
    • BNP’s attempt to acquire a stake in consumer-oriented Russian Standard Bank
    • fails
    • Foreign investors’ impact on industry structure still limited
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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

In most banks with foreign participation, non-residents have no controlling interest. ”Foreign” may mean repatriated Russian capital

Foreign banks not authorised to open branches in Russia

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Top-12 Russian banks by Net Assets (unaudited RAS data, June 2006)

Source: BanksRate.Ru

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Top-13-20 Russian banks by Net Assets (unaudited RAS data, June 2006)

Source: BanksRate.Ru

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Loan expansion in all market segments

Hottest segment: private loans (+42.7% in FX, +35.1% in RUR)

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Top-10 Russian banks by corporate loans (unaudited RAS data, June 2006)

Source: BanksRate.Ru

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Top-11-20 Russian banks by corporate loans (unaudited RAS data, June 2006)

Source: BanksRate.Ru

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

In 2005, client deposits grow by 36.2% compared to 38.4% in 2004. 36.7% in 2003.

Both corporate and private deposits decline in FX. Corporate deposits in RUR increase by 56,6%, private deposits by 23.3%. Individual deposits account for 75.8% of total.

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Improving structure: more than half of the deposits are over 1 year, but only few banks have access to this source of funding

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Lowest refinancing rate in the history of CBR

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Profitability

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Total value of operations with individuals’ bank cards (bn RUR)

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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

  • Trend in improving creditworthiness continues, but challenges remain
  • Positive macroeconomic environment likely to continue
  • High growth potential from currently low level of intermediation
  • Growth lower in 2004 than in 2003, but still high
  • Consolidation likely to accelerate
  • Market pressures and opportunities
  • Retail segment
  • Mortgages
  • Leasing
  • Investment banking
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15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

2005-2006 ”hot market” tendencies in retail

  • 2005: consumer finance, car loans
  • 2006 H1: mortgages, credit card-related loans
    • Sberbank’s share down from 80% to 60% in mortgages (with 3.7 bn out of 6.2 bn USD)
    • Total mortgage market increases by 220% to USD 6.2 bn
    • Growth rate of car loans down to 33%
    • Uncovered retail loans grow by 20%, express-loans by 11%
    • Nonperforming express loans’ share increases from 1.9% to 2.9%

(official CRB data). Rus Rating estimates NPL at 28%

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