The Race Is On
Sberbank heads most bank ratings and is the undisputed elder. “Young” banks can still outdo the “old man” in development dynamics and narrow the gap between the first and last lines of the ratings, while setting their own records in the process.
The Biggest Banks
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| Pavel Smertin |
| The volume of private accounts attracted to the Bank of Moscow has more than doubled in a year (in the photo: Andrei Borodin, president of the Bank of Moscow) |
In editions of Kommersant Publishing House (ID Kommersant), the size of a bank is traditionally estimated from its assets and capital. Assets, i.e., the amount of money a bank has invested in various instruments in order to make a profit, reveal the scale of its operations. Capital is essentially the money that would be left to the owners if the bank paid all its debts. The leader in both indicators is Sberbank of Russia. Hardly anyone is aware of Sberbank’s leading position, because for decades, the only bank that most citizens of our country had dealings with was the nearest Sberbank. However, this does not mean that this leadership is a given, unchanged since the days of the Soviet Union.
For example, in 1993–1994, Sberbank of Russia was consistently in second place behind Vneshtorgbank in amount of capital. In these same years, such well-known but now defunct banks as Tokobank and Agroprombank of Russia came very close to it. Sberbank was in second place behind Vneshtorgbank in capital as recently as 2001. However, in 2003, it surpassed its closest rival (the same Vneshtorgbank) in this indicator by nearly three times.
Overall, the order of the first five largest banks in amount of net assets has not changed in the past year (see the rating “Russia’s 200 largest banks by net assets” at the end of the text), but the order of the next five has changed appreciably. For example, International Moscow Bank (Mezhdunarodny moskovsky bank) dropped from sixth to tenth place, and Bank of Moscow (Bank Moskvy), which moved up one position, has taken its place. MDM Bank and Rosbank have also moved up one position for the same reason. At the same time, Citibank, which rounded out the top ten last year, dropped out of it and moved to 14th place. The position it might have aspired to (ninth place) was taken by Trust (Trast) Bank, a newcomer to the top ten. It rose from the same 14th place [which it occupied under the name Trust and Investment Bank (Doveritelny i investitsionny bank) last year].
Returning to the first position in our table, you will notice that there is no serious threat to Sberbank’s leadership at present. In its favor is the fact customers believe that the Central Bank, which owns a controlling share in Sberbank, will provide it with money if anything happens. Not to mention that its deposits are backed by state guarantees. To give the bank its due, over the past ten years it has learned how to make successful use of this competitive advantage. What will happen in the more distant future is another matter. If the deposit insurance law takes effect, Sberbank will become less attractive. Within a few years after the law comes into effect, Sberbank accounts will be no different from accounts in any other bank with respect to state guarantees. However, you can be sure that Sberbank will not give up its positions all at once. It has learned a thing or two over many years of operation on the market. It is no accident that another large state bank, Vneshtorgbank, which is controlled by the government, has so far been unable to overtake it.
The Most Profitable Banks
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| Dmitry Lebedev |
| If Sberbank’s profit were spent on setting up a new bank, this bank would be one of the 20 largest in Russia (in the photo: Andrei Kazmin, president and chairman of the board of Sberbank) |
Sberbank of Russia, with a profit of 29.84 billion rubles in the first nine months of 2003, led our list of most profitable banks by a wide margin (see the rating “Russia’s most profitable banks. Top 10”). Gazprombank, which came in second, had a profit of “only” 4.57 billion rubles. However, in order to fully appreciate the size of Sberbank’s profit, it is better to look at the table of largest banks. If these 29.84 billion rubles were spent on setting up a new bank, this bank would be among the top 20 in assets and the top three in capital.
Of course, this gigantic profit is mainly the result of Sberbank’s huge (by Russian standards) size. It has nearly six times the assets of Vneshtorgbank, the next largest bank. Vneshtorgbank’s assets have also worked less successfully than Sberbank’s, earning it only third (but still winning) place in the rating with a profit of 4.28 billion rubles.
However, none of the winners in the profit category can brag about super-efficient use of assets. This is mainly due to the large scale of their activities. All the same, in comparison with Neftegazbank (in fifth place on the list), whose profit to assets ratio for the first nine months of 2003 was 56%, the 1–2% profit to assets ratio of the three prizewinners is not very impressive.
It is another matter with the profit to capital ratio, which is essentially the level of income the bank can guarantee its owners. In this respect, all of the top-ten banks look very respectable. Even the lowest evaluation here would be “profit fully covers depreciation of capital due to inflation.”
Russian Credit Bank (bank Rossiisky kredit) stands apart on the list of most profitable banks, although it is in an honorable fourth place. On October 1, 2003, it had negative capital and was under the supervision of the Agency for Restructuring Credit Organizations (ARKO). However, it showed a profit like a “live” bank. It has been doing this for quite a while, but its profit can hardly be compared to what banks living a normal life call a profit. In many respects, this is because Russian accounting is not well suited to describing the state of a bank undergoing restructuring.
It is true that by November, Russian Credit was no longer under ARKO’s supervision and its capital increased, which in principle means that its profit had some relation to reality. If it ends up on the list of most profitable banks again next year, then of course there will no longer be any doubts about the legitimacy of its position.
The Most Retail-Oriented Banks
The private account market in Russia has traditionally been the most monopolized sector. A glance at the table of the most retail-oriented banks may give the impression that there is no one else except Sberbank. Indeed, in comparison with its 65% share of the deposit market, the shares of Alfa Bank and Bank of Moscow (2.41% each) are not at all impressive; and these are Sberbank’s closest, most serious competitors. As for the rest, even the next four banks in the top ten have market shares of less than 1%.
However, this is only superficial. If you look at how the situation is developing, things no longer seem so hopeless for Sberbank’s competitors. Two years ago, Sberbank’s market share was more than 75%; a year ago, it was 70%; and now, as was mentioned above, it is only 65%. It is easy to see that Sberbank is losing its position at an accelerating rate. Even so, if this trend continues, it will be at least ten years before Sberbank is equal to the general mass of banks. However, with each passing year, the situation will look less and less hopeless for competitors of Russia’s largest bank, since Sberbank’s lost percentages will go to them.
Alfa Bank’s share of the deposit market has increased from 2.26% to the already mentioned 2.41% in only a year; and Bank of Moscow’s share has increased almost 1.5 times in the same period. The private deposit market itself has also grown, so that in absolute figures, Sberbank’s competitors have grown even more decisively. The volume of funds attracted from private citizens has increased more than 1.5 times at Alfa Bank and has more than doubled at Bank of Moscow.
Meanwhile, the retail business is actively developing at both the banks named above and at many other banks that have not yet made the top ten. Alfa Bank is working out an ambitious retail program called “Alfa Bank Express”, while Rosbank has responded by buying one of Russia’s largest branch networks belonging to the OVK group of banks (which are former branches of SBS-Agro). Vneshtorgbank has great plans to expand its retail business, and Uralsib and Raiffeisenbank are both extremely active in this market. Thus, Russia’s retail monopolist has good reason to worry.
Banks with the Largest Corporate Accounts
Sberbank is also in first place in corporate client services, but it has a much less commanding lead here in comparison with most other markets. It has only slightly more than 19% of corporate settlement account balances, while second-place Gazprombank controls nearly 7% of this market. This is easy to explain, given that the account turnover of corporations like Gazprom is comparable to the turnover of an entire economic sector.
However, Gazprom is not the main reason for Sberbank’s position on this market. Whereas private depositors have been going to Sberbank since Soviet times because they see it as the closest (including geographically closest), most comprehensible bank, corporations have never had that attitude towards it. For a large company, the closest bank has primarily been a bank affiliated either with it or its trusted partners. Sberbank has mainly been affiliated with the state, which few businessmen perceive as a trusted partner.
Of course, many companies looked for other options, not necessarily in the closest banks, but rather in banks well away from the state. As a result, the corporate services market has become a kind of oligopoly, in which 47% of corporate settlement account balances are concentrated in the ten banks with the largest corporate accounts.
At the same time, the position of the top ten banks on this market is becoming stronger year by year. Suffice it to say that only two years ago, they had only 42% of corporate settlement account balances. However, Sberbank still has one important advantage over many other banks. During the 1998 crisis, it proved to be a much more reliable structure than large private banks. In many respects, this is why Sberbank’s share of the corporate services market has not fallen, but has actually increased slightly in recent years.
The Largest Credit Banks
The list of banks that have granted the most loans is not much different from the list of Russia’s largest banks. Sberbank of Russia, Vneshtorgbank, Alfa Bank and others (see the rating “Banks with the largest corporate accounts. Top 10”) are all on this list. For obvious reasons: the larger the bank, the more loans it can grant, and lending is a bank’s primary activity.
It is true that the government recently reproached Russian banks for not crediting the economy enough, unlike their colleagues in Western countries. Lately, however, these talks have died down on their own, for the obvious reason that today, loans make up more than 60% of the banks’ total assets. This is clearly seen in our table, which shows that the proportion of loans of most of the banks already exceeds the average figures. This growth is not due to calls from above, but simply because lending now looks like a very attractive business for banks. In a growing economy, the risk of loan defaults decreases and earnings from lending seem more stable than, for example, playing the stock market game.
After exhausting the possibilities of lending to traditional borrowers, e.g., major exporters, which the banks were still chasing after not long ago, bankers started to turn their attention to other clients. This led to rapid development of markets that until fairly recently seemed exotic in Russia, i.e., consumer lending, mortgage programs, credit cards, and many others. Programs like these have appeared at most of the banks listed in our table.
Quite often, however, banks that missed out on their share of large corporate clients in the 1990s also develop these programs. As a result, a whole range of new bank brands aimed at the mass consumer has appeared on the market. Many of these banks are still not on our list of largest credit banks; but considering how fast their loan portfolios are growing, it is quite possible that some banks operating in the old way will have to make way for them in the next rating.
All the Article in Russian as of Jan. 12, 2004
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