Banks Must Adapt to Survive the Crisis

Andrey Kuznetsov, chairman of the board of J&T Bank, told us about the challenges his bank and Russia's entire banking industry have been facing this year and about the prospects for 2016.

Maria Mishina

Andrey Kuznetsov

What has this year been like for J&T Bank? What are the main difficulties you've faced and what do you consider the main achievements?

Of course, this year has been difficult due to the behavior of our customers and the overall macroeconomic situation in the country. Still, the bank has been able to keep most of its key indicators and even improve them. Last December, many people were withdrawing their deposits due to the ruble devaluation. But by the first months of this year, the situation had already stabilized. We developed a reasonable policy on interest rates and adjusted our deposit conditions. Starting from the second quarter, we returned to our previous performance level. This year's main achievement is that we have been able to secure some foreign investment, which came from our shareholder. In these difficult conditions, we have been able to stabilize our capital base and enter new markets.

In addition to the overall economic downturn and the ruble's weakness against major currencies, this year has also been characterized by increased activity of the industry's regulator, the Central Bank. What impact has that had on the industry?

One of the challenges has been the tightening of requirements from the regulator. Banks' licenses are being revoked on an almost weekly basis. And I think that this process will continue for another two or three years. External factors were just a catalyst for problems that the banking system is facing now. Those problems were accumulating for a long time, and sooner or later they had to be dealt with. The Central Bank has now reached a point where it can deal independently with the entire banking system. I think that requirements [of the Central Bank] will become tighter, and sometimes they are excessive, and we feel that. But, in general, this is a movement in the right direction. Two parallel processes are in progress: the consolidation of the banking industry and a purge of the industry. Those banks that survive will come out stronger and more competitive.

At the beginning of 2015, more than 800 banks were operating in Russia. Now that number has decreased somewhat, but what do you think would be the optimum number?

There is a figure that unofficially comes from the Central Bank and people linked to it — 300 banks. That's a necessary and sufficient number for Russia's banking system at this stage.

Could you describe the overall situation in Russia's banking industry at the moment?

The main indicators for the banking industry are profitability and capitalization. This year is likely to bring losses for many banks, I'd say for the majority of them. As often happens, the results of large state-run banks can be corrected thanks to regulatory activities. But what we currently see is substantial losses of retail banks, which will be likely to continue into 2016. While the total capitalization of the banking industry could increase, as many banks have reported hikes in their capital, this year will most likely bring losses for the industry. We expect a good profit, but our example isn't typical for the industry.

What are the ramifications of sanctions slapped on Russia by the West over Ukraine and Crimea?

The banks are managing. There haven't been any major defaults. To some extent, this is due to the government's support of banks that were heavily reliant on foreign credit. Banks such as VTB and Sberbank were among the first to be affected by the sanctions, but they survived the shock. At the moment, I don't see a serious threat for them unless there are more sanctions or the oil price goes further down.

What bank products are the most and least profitable as the industry adjusts to the new circumstances?

The most profitable products are those in the area of POS (point of sale) crediting. And the least profitable are consumer loans to private individuals. Now, by the fourth quarter, the situation has stabilized somewhat, but it still remains quite problematic. There are just a handful of successful examples (of retail-oriented) banks, and the majority are in a difficult position.

Some experts say that, as the Central Bank cuts the interest rate, the situation in the banking industry will improve. Do you share that opinion?

Just cutting the interest rate wouldn't be enough. This is just one factor, and I think it will have a positive impact. If the Central Bank can cut the interest rate, keep inflation in check and maintain a relatively stable exchange rate [of the ruble], that will be its major impact on the situation.

As banks adapt to new conditions, are there any new products that they are offering their customers?

The main products remain the same, such as loans, deposits and operations with securities. The change is in the formats in which those services are provided and amounts of money involved. I don't see any dramatic changes here. The main trends have been formed, and everything is going to develop within those trends, including plastic cards, Internet banking and remote access services.

What can Russian banks expect from 2016?

There will be more hardships. The first half of next year is going to be quite difficult. We are likely to face increased customer caution concerning deposits as they watch the ruble's exchange rate carefully. The segment of loans to small and mid-size businesses is likely to stagnate as stricter loan conditions, which were introduced this year, are likely to stay.

J&T Bank is a partner of The Moscow Times Awards this year. In what way is this partnership important for the bank?

We're participating in this award for the first time. The format was interesting to us, and we always support events that are in one way or the other aimed at naming the best.   

Doing Business in Russia 2015
Doing Business in Russia 2015
The business community in Russia has reasons to be optimistic, as there really does seem to be light at the end of the tunnel.
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