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THE RUSSIAN BANKING SYSTEM

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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THE RUSSIAN BANKING SYSTEM

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  1. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest THE RUSSIAN BANKING SYSTEM

  2. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest

  3. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Russian banks’ major indicators (end-period)

  4. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Penetration (in % of GDP), end of period

  5. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Existing banks vs. Liquidated banks (31.08.2006)

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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.

  14. 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

  15. 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

  16. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Russian banks: additional offices and cash points

  17. 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)

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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)

  27. 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

  28. 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

  29. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest

  30. 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.

  31. 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

  32. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Lowest refinancing rate in the history of CBR

  33. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Profitability

  34. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest

  35. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Total value of operations with individuals’ bank cards (bn RUR)

  36. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Russian banks’ growth perspectives 2004-2009 (MoF and ARB forecasts)

  37. 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

  38. 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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