Russian banks have limited opportunities to increase their capital independently without eroding financial stability, and the state will remain the main source of financial assistance for the sector over the next few years, Russia's Analytical Credit Rating Agency said June 13.
Only 21% of banks under ACRA's review, accounting for 36% of the Russian banking sector's assets, have been able to generate capital in a stable manner over the last three years, while 62.5% of banks, accounting for 46% of the sector's assets, have experienced problems with their ability to increase capital at least once during the same period.
The appetite for bank owners to invest into the banking sector is declining due to stricter regulations, worse dividend prospects, the dominance of state-owned banks and low economic potential, ACRA said. On the back of declining investment interest in the banking business, the support and the role of the state in the sector is growing, the rating agency noted.
In 2017, the averaged capital generation ratio calculated by ACRA for the largest Russian banks, holding 89% of the sector's assets, dropped from 76 basis points to minus 86 basis points, mainly due to the recognition of 1.45 trillion Russian ruble losses by large lenders bailed out by the central bank's banking sector consolidation fund.
Until 2021, the banking sector's average capital generation ratio is expected to remain low at around 70 basis points, and the Tier 1 capital adequacy ratio, calculated under international financial reporting standards, will not exceed 11.4%, according to the rating agency.
ACRA also noted that the major contribution to the sector's profitability and capital generation will continue to come from Russia's state-owned banks, mainly PAO Sberbank of Russia, as well as a range of large private lenders and foreign subsidiary banks with high creditworthiness.
As of June 13, US$1 was equivalent to 62.40 Russian rubles.