RUSSIA FORUM BUZZ. Banks: Consolidation and Change

Anatoly Aksakov began by underlining the hastening of regulatory changes in the banking sector’s current environment. Regulation on reorganization of banks and on exaction on pledge has been successfully passed, while many other initiatives, including legislation on securitization, are on the table. While the Central Bank supports the idea of reorganization in order to strengthen the system, it does not believe in taking administrative measures to reduce the number of banks in the system, and believes that it should be a natural process. He also added that smaller banks are of high importance for regions.

Mikhail Sukhov continued the idea of market-driven sector changes, giving the example that in October-November, the share of the top-5 banks increased 1.6% to 45%, and the process is likely to intensify. He gave a further example of increased regulatory initiatives, namely the easing of procedures for shareholders to inject capital (the Justice Ministry signed the changes yesterday). Sukhov also underlined that the share of foreign capital in the system is not declining (28.5% as of January 1), which shows the willingness of foreign banks to sustain their presence in Russia and provide capital to subsidiaries. Finally, he says that NPL anywhere around 5-6% in the system is still comfortable for the capital adequacy of Russian banks.

Nikolay Tsekhomsky provided his thoughts on possible capital raising by VTB in 2009. He confirmed, that all options are on the table, although he stressed that capital raising in the form of hybrid equity (convertible instruments) would not increase tier 1 under Russian legislation, and the issue of preferred shares would enable a Russian issuer to increase equity by up to 25% only, while there is also a risk of the preferreds becoming voting stock in case of losses. As such, that issue of common shares is possible/likely.

Philipp Delpal expanded upon the idea of sustained interest of foreign banks in the Russian market, although he agreed that the speed of expansion had to be revised. He underlined the importance of regulatory changes for capital raising and the need for ruble/forex swap instruments for banks (forex denominated bonds, which the Central Bank is currently discussing).

Nikolay Gavrilov dwelled on state support for banks, and stated that it needs to be rather supportive than dominative for banks. He also discussed the role of banks in export operations in Russia. Finally, he thought that it might be the right time to develop complex financial instruments in Russia, in addition to vanilla instruments.

Participants agreed that the Russian banking sector is in the process of structural changes, where regulation and legislative initiatives (including on capital raising) are of high importance for players and stability overall. Speakers also agreed that while the role of the state is increasing, the long-run strategy with declining presence of the state in banks’ capital remains valid and should be on the table when the situation eases.

PANEL:

Richard Hainsworth, Chief Executive Officer, RusRating
Anatoly Aksakov, Deputy Chairman of Credit Organizations and Financial Markets Committee, Member of National Banking Council of the Russian Federation Central Bank
Philippe Delpal, President of “BNP Paribas Vostok” Bank
Nilolay Gavrilov, Chairman of the Board, Roseximbank
Mikhail Sukhov, Director, Credit Institutions Licensing and Financial Rehabilitation Department, Bank of Russia
Nikolai Tsekhomsky, Chief Financial Officer, VTB

Troika Dialog

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