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. Last Updated: 07/27/2016

Banks Take Security, Not Industry

Increased bank lending to industry is widely viewed as the key to stimulating economic growth in Russia. But new ratings of the country's top banks show that, for now at least, speculating in government securities is far more profitable than investing in turning around ailing enterprises.


State savings bank Sberbank, Gazprom-linked National Reserve Bank and Avtobank, all big players in the state treasury bills market, were among the top profit-grossers in the third quarter, according to Interfax rankings published this month.


Uneximbank, the International Financial Company, or MFK, and Bank Menatep -- banks focused on building their industrial portfolios, mostly in the metals and oil sectors -- all took a hit on their bottom lines.


Overall, there was little change among the country's banking elite: Stolichny replacing MFK was the only change in the top 10, and only one bank dropped out of the top 50, Credo-Bank, which was taken into crisis management by the Central Bank in October.


The survey also showed the National Reserve Bank continuing its phenomenal climb with its profits and capital figures skyrocketing.


While it was operations with government securities that secured the bulk of the top banks' earnings, this says little about the banks' longer-term prospects, analysts said.


"A large part of overall banking profits came from operations with different debt instruments," said Andrei Yashchenko, a United City Bank. But, he added, "Uneximbank and Menatep have a large profit potential and they will show that in the coming years."


Through Sept. 30, Sberbank, Russia's largest credit institution, earned 8.9 trillion rubles in year-to-date profits, according to the Interfax rating, based on the figures reported by the banks. National Reserve Bank showed profits of 1.2 trillion rubles and the private Moscow-based Avtobank showed 730 billion rubles.


The high profits posted by the National Reserve Bank were a result of its activities in "a broad spectrum" of government debt markets, including the markets for ruble T-bills, currency-denominated MinFins and Vnesh debt, Yashchenko said.


Annualized yields on state securities, which peaked at more than 200 percent just before June's presidential election, remained high through most of the third quarter, although they since have sunk to record lows of around 35 percent.The key for the Russian economy, analysts and government officials agree, is for banks to start channeling their money to investment in industry. Uneximbank, MFK and Menatep, however, saw that strategy lead to a certain decline in their assets or weaker profits than those reported by other top banks.


Uneximbank's assets have dropped by 17 percent so far this year, while MFK's assets tumbled by 38 percent. Menatep saw some asset growth, but its pre-tax profits after nine months were 127 billion rubles, only slightly better than Uneximbank's 125 billion rubles.


But bankers said the latest profits numbers did not tell the whole story.


"The figures are not an end in themselves. What is important is the successful strategic direction of the bank," said Modest Kolerov, chief spokesman of Uneximbank, which retained its spot as Russia's largest private bank in the Interfax ranking.


Kolerov said Uneximbank's and MFK's modest results are due to "reorientation toward an ever more active participation in the investment process."


Uneximbank and MFK control two of Russia's largest companies, Norilsk Nickel and Sidanko oil, which both demand large investments.


"T-bills are not the most important instrument anymore, they are in many ways a thing of the past," Kolerov added. "They will not dominate the markets in the future, instead we will see increased focus on promissory notes."


Other industry players said the reported low profitability among some top banks was no major cause for concern.


"The large banks that are really financial-industrial groups may re-direct their profits through other companies for tax reasons," said one Russian banker, who asked not to be identified.


The drop in T-bill yields notwithstanding, several institutions show sound capital growth.


Most striking is the National Reserve Bank, which increased its capital by a whopping 1,154 percent over the first three quarters of 1996, emerging as Russia's third largest credit institution in terms of capital. It was virtually unheard of at the start of 1995, when the gas monopoly Gazprom took a stake in it.


Among other top banks with strong capital growth in the first three quarters were Vozrozhdenie (104 percent), Avtobank (100 percent), the St. Petersburg Promstroibank -- the only non-Moscow institution in the top-20 -- (94 percent), and the International Moscow Bank (86 percent).