Bailout Package Seen Not Saving All Banks

Despite the bank bailout package swiftly introduced by the government, many Russian banks will face liquidity pressures and falling profitability as access to credit stays limited and rising rates lead to fewer loans and more defaults, banking analysts said Wednesday.

Big state banks such as Sberbank and VTB appear poised to become the industry winners in the short to medium term, although both have lost about 60 percent of their stock value since January.

They are the primary beneficiaries of the emergency loan extended last week to 28 banks by the Finance Ministry, pocketing $41 billion of the $60 billion aid package. They are also expected to see an increase in deposits as individuals and companies shift their money from other banks into safer, state-backed havens.

"We certainly expect more bank failures and a stronger role played by state banks," said Olga Naidenova, a banking analyst at Alfa Bank, one of the 28 banks.

Ruble deposits in Russian banks totaled 5 trillion rubles on Aug. 1, up 33 percent from a year earlier, the State Statistics Service said on its web site Wednesday. Sberbank held 47 percent of deposits by individuals, down from 49 percent last August, in an indication that the bank was losing market share prior to this month's banking turmoil but may now benefit from an unfolding crisis of confidence in the banking sector.

Sberbank's and VTB's key risks include exposure to dicey sectors such as real estate, retail and agriculture via their loan portfolios, but these risks are reduced by the fact that they are relatively well-diversified and have become the main conduits for state funds into the economy, UralSib said in a report.

Meanwhile, smaller banks will continue to face funding bottlenecks because the large and state banks are hesitant to take on smaller counterparty risk and are waiting for government guarantees before releasing liquidity to a wider group of banks, Renaissance Capital said in a report.

Banks with significant exposure to risky sectors and aggressive securities trading are likely to face additional pressure, becoming attractive targets for rivals with strong balance sheets, as the buyouts of KIT Finance and Renaissance Capital last week suggest.

The number of banks that will lose their licenses in the coming months will be in part a political decision because letting even a few small banks fail may cause a new crisis of confidence that will affect the whole banking system, Naidenova said.

"Big state banks are best positioned to acquire weaker players," she said. "But the question is whether they have interest in doing so now, when the quality of bank portfolios may not become clear until a round of real estate re-pricing."

The Central Bank is prepared to help the banking industry consolidate amid the liquidity squeeze, said the bank's first deputy head Alexei Ulyukayev told a conference Wednesday.

Mergers are a "rational and effective way of proceeding for shareholders," he said, Bloomberg reported. "We expect it and are ready to help this."