The share of the largest banks in the Russian market fell for the first time in ten years

Over the past six months, the share of the top 15 banks in the sector's assets fell to 84.6%, Expert RA calculated, predicting a "deconsolidation course" and strengthening the market positions of smaller players.Other experts consider this phenomenon temporary.

The crisis and sanctions have shaken the market positions of the largest Russian banks: in the first half of 2022, the share of players from the top 15 in the assets of the sector decreased by 1.3 percentage points, to 84.6%, according to a review by the Expert RA rating agency (there is at RBC). According to analysts, the decline in the market share of large banks was recorded for the first time in ten years. Expert RA calls the new vector in the development of the sector “the course towards deconsolidation”.

What analysts thought

Since March, Russian banks have not disclosed regular reporting under RAS and IFRS, but must provide it to the agencies from which they order ratings. None of the Russian rating agencies have access to the accounts of all players.

Expert RA made estimates based on the data of 129 credit institutions, their share in the assets of the entire sector, excluding Sberbank, was 82% at the beginning of 2022. The agency divided the studied banks into groups depending on the structure of their income and customers, as well as positioning. Thus, analysts identified six business models:

Big business. Small and medium business (SME). Mortgage. Auto loans. Unsecured loans, or consumer loans. Settlement and investment services (RIB).

In the review, "Expert RA" gives estimates of how the crisis affected the business performance of each of the groups. These are the average values ​​for the selected category of banks.

How different banks survived the crisis and sanctions

As noted in the Expert RA review, the maximum losses and the worst dynamics of business indicators were recorded by banks working with large corporate clients. Market participants focused on SMEs, on the contrary, turned out to be the most resistant to the crisis.

loan portfolios. According to the results of the first half of the year, banks from the "large business" and SME segments recorded a contraction in loan portfolios - by 3 and 0.5%, respectively. Market participants specializing in mortgages were able to increase their loan portfolio by 10.1%, while those who focused on consumer lending increased their assets by 3.4%. Liabilities. According to Expert RA calculations, mortgage banks recorded a net outflow of customer funds in the first half of the year: their deposit base decreased by 0.3%, but in absolute terms the amount is insignificant - only 1 billion rubles. A significant increase in funds on accounts and deposits was shown by settlement and investment banks - by 18.6%, or 131 billion rubles. In the second half of the year, the flow of customers to banks may increase, analysts believe.

The Central Bank did not see the risk of a repeat of the large-scale reorganization of banks due to the crisis

Interest income and net interest margin. The sharp increase in the Central Bank's rate to 20% at the beginning of the crisis brought the least loss from interest rate risk to players specializing in settlement services and investment banking. Their net interest margin was 4.8% as of July 1, adding 1.4 percentage points over the year. Mortgage banks were able to bring the indicator up to 4.7% (+0.6 p.p.), and banks from the SME segment - up to 6% (+0.6 p.p.). For all other groups of banks, the cost of funding grew more than the return on assets, which led to a decrease in business margins within 1.5 percentage points. Fee and commission income and net fee and commission margin (NCM).The decrease in commission fees in the first half of the year was mainly due to a drop in the issuance of loans and related additional products, Expert RA notes. This affected the performance of retail banks most of all: for example, in the consumer lending group, the net commission margin fell by 0.7 percentage points to 1.3%. Reserves and arrears.As noted in the review, according to the results of the first half of 2022, the deterioration in the quality of bank loan portfolios has not yet been observed in any of the groups. However, some of the possible problems have not yet fully materialized, analysts warn: "The impact of the crisis on the balance sheet quality of loan portfolios is veiled by the ability not to worsen the assessment of the client's financial position and the quality of debt service." They allow the growth of problem loans by the end of the year, but do not give accurate forecasts.

Which companies and borrowers pay their debts worse in a crisis

Capital. According to Expert RA, as of July 1, 2022, on average, all groups of banks under study complied with the core capital adequacy ratio (N1.2). Its minimum allowable level is now 6%, and taking into account allowances - 8.5% for systemically important banks and 7.5% for all others. According to analysts, the abolition of regulatory easing is not critical for the banking system as a whole: benefits from the Central Bank have a tangibly positive effect on capital only for banks engaged in consumer lending. In this group, concessions give 3.2 p.p. to the standard H1.2, which at the reporting date was 13.4%.

“However, for some banks, regardless of the type of business model, the effect on the regulations reaches 10 percentage points, and a one-time cancellation of easing may lead to a violation of prudential requirements and subsequent revocation of the license,” Expert RA warns.

Profit. First Deputy Chairman of the Central Bank Dmitry Tulin in an interview with RBC estimated that in the first half of the year the banking sector suffered losses of 1.5 trillion rubles. 25% of players were unprofitable.

"Expert RA" in the review gives the distribution of the share of profitable and unprofitable, depending on the business model of banks. According to the agency's calculations, in the "big business" group, 20% of players showed a negative financial result, although there were none at all before the crisis. Half of the banks specializing in unsecured retail turned out to be unprofitable (previously there were 25% of such banks). The share of unprofitable organizations in the mortgage and car lending segment increased from 14% to 29%. The only group where the number of profitable players has grown is SMEs, where 83% of banks recorded a positive financial result in the first half of the year against 77% a year earlier.

What are the prospects for Russian banks

The share of the largest banks in the sector’s assets began to decline, and the decline will continue, Expert RA believes: “The agency expects further transformation of the banking sector, which will result in a decrease in concentration in the top 15 due to the outflow of withdrawal from the market of a part of retail monoliners”. Analysts note that the growth of the market share is now shown by banks occupying 16-100th places in terms of assets, and players outside the top hundred are unlikely to improve their competitive positions.

In the medium term, according to the agency, we should expect further stagnation and reduction in the business of small banks, which will lead to an increase in the concentration of the sector, but in many respects not due to the top 15, but due to credit institutions that rank in assets from the 16th to 100, the review notes. The reduction in the number of banks through the revocation of licenses or the voluntary withdrawal of players will also contribute to an increase in the concentration of the banking sector.

“In general, small and medium-sized banks have historically had a higher reserve of free capital and liquidity due to lower lending growth rates due to competition with federal players. In the current situation, many of them have a chance to increase their client base for cash settlement services (settlement and cash services. -) and increase their loan portfolio, ”explains Lyudmila Kozhekina, DIRECTOR of banking ratings at the Expert RA agency.

Since the beginning of the crisis, banks have made concessions on loans worth 9.5 trillion rubles. Finance

According to Expert RA's calculations, the number of banks working with large businesses will decrease, including through the merger of credit institutions. In their opinion, market participants in the SME segment have the greatest growth prospects. Experts attribute this to the fact that large corporate clients will continue to transfer settlements to small and regional credit institutions, and due to sanctions restrictions, they will more often include small and medium-sized players in their economic chains.

What other analysts think about the future of banks

Certain large and medium-sized banks that did not fall under the sanctions, indeed, received an influx of customers during the crisis and could strengthen their positions, says Mikhail Doronkin, managing director of the NKR rating agency. “At the same time, these same banks are forced to be very careful in choosing clients and fulfilling individual orders so as not to fall under sanctions themselves. In addition, large foreign banks began to close correspondent accounts for banks that did not fall under direct sanctions, ”the analyst notes. He considers the advantage of such banks temporary. “With a high probability, we will see further consolidation of the sector and consolidation of operations at the largest banks, primarily those under sanctions,” he concludes.

The Central Bank will consider the creation of a new fund to support banks

The baseline scenario now is an increase in the share of large banks, including the top 15, in assets, says ACRA CEO Mikhail Sukhov. “It is the large banks that will pick up the loan portfolios of the largest Russian companies lending in banks controlled by non-residents. Some large bond issuers are refinancing loans due to the situation in open markets,” he argues. Sukhov doubts that the banking sector will come to deconsolidation, and the market positions of medium-sized banks will significantly increase. The concentration of banking sector assets in the top 15 will continue in the short term, as it has historically been, believes Konstantin Borodulin, director of NRA banking ratings. “The partial outflow of customers from banks with a limited list of operations due to sanctions is offset by attracting customers to other products.