The Russian authorities in 2013-2015 spent a 3.36 trillion rubles to support and “cleaning” of the banking sector, estimated by analysts of international rating Agency Fitch. The amount is equivalent to about 4% of Russia’s GDP in 2015.
About half of this amount was spent on recapitalizing working banks and the other half to rescue failed banks and (or) payments to their depositors.
Of the total 830 billion rubles. — capital from the Deposit insurance Agency under the program of recapitalization through Federal loan bonds (OFZ). 880 billion rubles. — capital from other government agencies, mainly from the national welfare Fund (NWF). 900 billion rubles — loans from the DIA reorganized banks at the end of last year (most of them were issued in 2013-2015) and 750 billion rubles. — DIA payments to depositors of banks with revoked license in 2013-2015.
As explained by Fitch, one of the main problems of the banking sector, the solution of which requires large expenses, that banks with a weak financial profile. As at the end of last year in Russia there were more than 600 banks. That’s a lot, although for two years number of credit institutions declined from thousands, experts say Fitch.
The imperfection of the mechanisms of salvation
According to analysts Fitch, currently used methods of recovery and destruction of banks is imperfect. The decision on whether to save or liquidate a Bank may depend on the Bank size, the level of problems and, probably, “the relationship of the authorities with shareholders and creditors of the Bank”, the Agency said.
“Cleaning and consolidation of the sector do not affect the small banks that are not in the top 200. The role of these banks is limited and not always clear, says the Agency: such banks account for only about 3% of sector assets. The planned increase in minimum capital from 300 million rubles to 1 billion rubles will affect only Federal banks (that is, less than 300 banks), which according to analysts Fitch, which significantly reduces the effectiveness of this measure.
The government provided monetary support, as a rule, state-owned banks that need additional capital due to weak profitability and a large amount of bad assets, explained Fitch analysts. It is unclear what is the mechanism of support will be used after the introduction of a mechanism of bailing out failing banks bail-in (this system allows rehabilitation to use the funds of creditors whose claims are turned into stock, or placed on irrevocable deposits at low interest rates), which may occur in the second half of 2017.
Bailing out banks imposes large costs and time of resolving problems, as well as “incomprehensible actions of some banks-sanatory”, according to Fitch.
According to experts of Agency, the system of bail-in will help to reduce the costs to taxpayers to support the sector. The Bank of Russia could also create a special Fund for Bank resolution, which will directly provide the banks with capital instead of cheaper loans to ASV.
In 2016, Fitch expects the growth of retail lending at 3% (0% in the first half). The situation with retail loans Agency calls one of the challenges for the banking sector. According to analysts of the Agency, it is not a developed and high-risk: banks will concentrate on products with high risk and high reward. In particular, poorly developed mortgage: it is only 8% of the total loans of the sector and its development keep high rates and low availability of housing. In addition, over 55% of the retail loans in the country unsecured, have a short term and high interest rates, so the average payment is very small relative to income. High interest rates, the Agency said, increases the debt burden, limit the demand and credit growth.
The Agency also predicts that in 2016 the weak corporate lending growth — at the level of 5%. At the same time it expects a 10% increase in the volume of deposits due to significant ruble issue of the Central Bank in financing the budget deficit.
In the first half of the growth of deposits amounted to 4%. Deposits grew mainly in state-owned banks, reflecting the interest of investors in the allocation of funds more reliable banks, as the cleaning sector continues. Introduction of a system of bail-in, which is expected to take place in 2017, can cause the flow of deposits in more reliable banks that will give impetus to the consolidation of the sector, according to analysts of the Agency.
Fitch analysts expect profit of the banking sector in 2016 at about 300 billion rubles In January-June, according to the Agency, the main banks ‘ profits (net profits less dividends received and results from the recognition of deferred tax assets/liabilities) amounted to 163 billion roubles, the Profit of Sberbank in the first half amounted to 120% of the profit sector, the Agency said.