The Russian state is likely to continue its drive to consolidate the financial sector by forcibly taking over failing and noncompliant banks, but once risks subside it will sell down its bank holdings, according to a senior state official.
Ekaterina Trofimova, the CEO of ACRA, Russia's national credit rating agency. Source: Associated Press/Sputnik |
However, lenders taken over by the state are unlikely to be privatized in the next five years, Ekaterina Trofimova, the CEO of ACRA, Russia's national credit rating agency, said in an interview on the sidelines of a London conference.
The Russian state, either via government-owned lenders such as VTB and Sberbank or through the central bank, now controls about 70% of the banking assets in the market, according to various estimates, after a surge of bank closures which started in 2013.
"The government recognizes that this is not a sustainable or preferable situation especially for the competitive landscape," Trofimova said. "It was inevitable in the current readjustment period. We expect that in the medium term, but unlikely before five years or so, there will be some sales of banks, privatizations."
Clean-up 'necessary to avoid economic collapse'
The cleanup was necessary to avoid economic collapse, she said, emphasizing the need to stabilize the financial system by cutting off lenders who engaged in fraudulent transactions, imprudent lending and general noncompliance with the rules after sanctions put a squeeze on foreign capital.
"It is one of the responses to the geopolitical pressure and the economic pressure that the government intervenes [in the banking sector]. I would not exclude that the share of the state in banks might increase even further but not by much. We see foreign banks still playing a significant role in the economy and private investors still interested to keep banks under their control."
Historically, the Russian state has been comfortable with controlling about 50% of banking assets, she added, with more than that raising questions about the central bank's remit.
"The central bank cannot own and regulate everything in the market. Everybody understands that this is a temporary situation, but this temporary situation will last for a while."
The Carnegie Institute in Moscow, a U.S.-founded thinktank, has estimated that 2,600 banks out of 3,000 lost their license between 2000 and 2017.
Asset quality risk
Some banks might have to make "compliance adjustments" to deal with the most recent sanctions issued against Russian companies and individuals in January, and the US Treasury's promise of more to come, Trofimova commented, pointing to the government's decision to make PAO Promsvyazbank the sole lender to the defense industry.
But she saw no risk from sanctions to the banks' bottom line or capital base. "The Russian banking system has largely adjusted to the sanctions regime and we do not expect new sanctions to have any significant impact on the Russian financial sector or the economy in general."
ACRA's financial stability tracker registered only a moderate negative uptick following the announcement of further sanctions, she said.
"The situation in the banking system is over-liquid, as we can see from the placements of extra cash at the central bank," she added.
Instead, asset quality seems a more prominent risk, Trofimova said, after banks rushed to expand lending following a recession caused by the double whammy of sanctions and a fall in the price of oil. Overdue loans increased in the third quarter of 2017 to 9.6% of the total, from 9.1% at the end of June, according to Sberbank, the largest Russian bank.
ACRA was founded by the Russian government in 2015, in order to fill the gap left in the market by the withdrawal of foreign rating agencies due to international sanctions being imposed.
Trofimova is an ex-management board member at AO Gazprombank and ex-head of S&P Ratings for Russia in Paris.

