Analysts saw a flow of business settlements to small banks

Medium-sized banks showed an increase in the company's transactional operations. They are chosen for international transfers, notes Expert RA. Banks ranked from 11th to 100th places for the first time overtook the top 10 in terms of the ratio of such turnover to assets

In banks outside the top 10, there is a “powerful” increase in transaction activity among clients - legal entities, as companies choose them to carry out international payments. The rating agency Expert RA writes about this in a review of the results of the banking sector in the first half of 2023, received by RBC.

Analysts studied the Central Bank's statistics and reporting data from 133 banks that have credit ratings from the agency (that is, they share their data with it). Their share in the assets of the entire banking sector excluding Sberbank as of July 1, 2023 was 83%.

How much have customer transactions increased for banks?

“The focus of clients is on credit institutions from 11th to 100th place, where, despite the relatively restrained dynamics of the absolute size of liabilities within 3%, there is a significant increase in client turnover on accounts,” says the review, which compares the indicators of the first half of 2023 with the same period last year. For banks from 11th to 100th place, the ratio of average monthly turnover on accounts of legal entities to the assets of the banks themselves as of July 1, 2023 was 122%. A year ago this figure was at 97%.

For banks from the top 10 in the first half of 2023, the ratio was 111% versus 115% a year ago. This is the first time that smaller credit institutions have outperformed the largest players in this indicator, as follows from Expert RA calculations.

“Bank assets themselves are not growing that much. Thus, we can conclude that turnover is increasing due to the transactional activity of clients, and not due to an increase in balances on their accounts,” Ksenia Yakushkina, DIRECTOR of bank ratings at the Expert RA agency, explained to RBC.

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This trend is accompanied by an increase in the absolute size of account balances in non-resident banks among players not from the top ten. This, according to analysts, suggests that most of their clients carry out international payments, which cannot be carried out in the largest credit institutions (almost all of them are under international sanctions).

It follows from the review that the volume of funds of non-large players in non-resident banks in the first half of 2023 doubled (to 1.2 trillion rubles) compared to data as of July 1, 2021 and exceeded the figure for the top 10 banks (about 1 trillion rubles this year versus 900 billion rubles in 2021).

Clients-legal entities still prefer to carry out transactions within the country through the top 10 credit institutions, according to data from Expert RA.

Why are transactions growing in medium-sized banks?

Transaction activity in banks from 11th to 100th place began to grow in the second half of 2022, and the trend continued in the first half of 2023. “The main reason for the growth in the volume of customer transactions in this group of banks is due to the possibility of conducting international payments there; some clients also transferred domestic payments there, but on a much smaller scale,” said Yakushkina.

Clients rarely choose banks outside the top 100 for international payments. “Despite the ability of these credit institutions to conduct transactions in soft currencies as they open accounts in friendly jurisdictions, they cannot provide a comparable level of services, which causes a slowdown in the flow of legal entity balances to this group of banks,” the review says. To service foreign economic activities, clients try to choose larger credit institutions that combine non-sanctioning, technology and good customer service, Expert RA analysts note.

Among the largest banks under various restrictions of Western countries ( sanctions , disconnection from SWIFT, unavailability of currency transfers) are Sberbank, VTB, Promsvyazbank, Alfa Bank, Sovcombank, Rosselkhozbank, Tinkoff Bank, Otkritie, Gazprombank, Rosbank and MKB. Since the spring of 2022, foreign credit institutions began to cut off correspondent accounts of Russian banks, regardless of their location on sanctions lists, or increased verification of transfers from RUSSIA. As a result, large banks under sanctions were forced to either completely curtail international transfers or set up alternative methods for conducting them. For example, Sberbank carries out international transfers to a limited list of countries mainly in rubles.

Now the mechanism of international payments is individual for each direction and depends on several parameters, including jurisdiction and how banks, exporters and importers work in this direction, said Mikhail Kovrigin, director of the department for organizing international payments of the Central Bank. According to him, competence in organizing foreign payments has become a competitive advantage, although previously it was taken for granted. However, small banks face a lack of competence in organizing such operations.

What profits do analysts expect from banks?

Expert RA analysts also predict record profits for the banking sector at the end of 2023, which will exceed 3 trillion rubles. Based on the results of the first half of 2023, banks have already received a profit of 1.7 trillion rubles. More than 75% (2.4 trillion rubles) of the annual financial result will be provided by banks from the top 10. The share of banks from 11th to 50th place will be 580 billion rubles, banks from 51st to 100th place will earn 125 billion rubles, the rest (4 billion rubles) will be received by banks outside the top 100, they believe in Expert RA.

“Despite the increase in the key rate, the largest banks will be able to maintain net interest margins due to high rates on consumer loans and hedging the profitability of the mortgage portfolio thanks to preferential programs,” the authors of the review believe. Banks from 11th to 100th places are less dependent on rate fluctuations, since they have a higher share of commissions in the structure of operating income, and banks not included in the top 100 will benefit from rising rates. The record profit level will also be affected by an increase in foreign exchange revaluation after the weakening of the ruble.

External shocks, including increased sanctions pressure on the financial sector and manufacturing industries, may have a significant impact on the current forecast, Expert RA analysts warn.