Thursday 27 October 2016

Sanctions have a silver lining as Russia's private banks cash in

Oksana Kobzeva

Published 26/08/2015 | 02:30

Russian President Vladimir Putin
Russian President Vladimir Putin

Four private banks with friendly ties with the Kremlin are emerging as big winners from Russia's economic crisis, helping out dollar-starved companies at a time when large state lenders are hampered by Western sanctions.

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The four - FC Otkritie, Promsvyazbank, Credit Bank of Moscow and B&N Ban - were relatively minor players only a few years ago.

Now they are major beneficiaries of a bank recapitalisation plan and have used central bank foreign currency refinancing tools to win business lending to state energy firms and others needing to meet big overseas debt repayments.

By contrast, sanctions over the Ukraine conflict have closed international capital markets to state lenders such as Sberbank, VTB and Gazprombank and private ones owned by allies of President Vladimir Putin such as Bank Rossiya.

The state banks are also unable to use foreign currency refinancing tools from the central bank for more than 30 days due to risks for Western clearing banks.

"Private banks are carving themselves out a position by increasing lending to large industrial companies, whereas they used to have to wait in a queue behind state banking giants," said Chris Weafer, senior partner at Macro Advisory consultancy.

"We are seeing the emergence of a new banking sector post-crisis," said Weafer, a long-serving financial analyst based in Moscow.

Otkritie, the only of the four lenders whose stock has been listed for some time and is liquid, has seen its shares rise 25pc in the past year versus an 18pc rise in the broader MICEX index.

Its assets, a reflection of its loan book, almost tripled to 2.7 trillion roubles over the course of the year leading up to the end of June, Promsvyazbank's assets rose by 30pc to 1 trillion roubles, Credit Bank of Moscow's by 60pc to 760 billion roubles and B&N Bank's more than doubled to 570 billion roubles, data from Fitch Ratings showed.

Promsvyazbank said last year that it had lent hundreds of millions of dollars each to oil producer Lukoil, energy giant Rosneft and potash producer Uralkali around the time of the sanctions.

The private banks' growth is especially striking because falling oil prices mean overall lending is contracting as the economy shrinks at the fastest pace since the 2008/09 global financial crisis.

With large debt repayments due from September, attention is turning to how Russian firms will be able to cope given that global capital markets remain frozen for them. Analysts say private banks could once again help by giving loans to those scrambling for foreign currency.

Large private banks have been used more and more as prime channels to finance strategic sectors as the large state banks have been sanctioned," said Vladimir Miklashevsky, trading strategist and economist at Danske Bank.

The new rising stars in the banking sector differ from banks such as Bank Rossiya, which belong to some of the oldest and closest allies of Putin, businessmen Yuri Kovalchuk and Nikolai Shamalov.

Bank Rossiya was referred to by the United States as "the personal bank for senior officials of the Russian Federation" when Washington imposed sanctions on Russia in 2014.

As private banks ramp up lending and receive government support, they are also seeking to expand by snapping up rivals in Russia's overcrowded banking market. (Reuters)

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