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The Russian banking sector: a large market offering substantial growth potential

The Russian banking sector The Russian banking market is the largest and one of the most dynamic in emerging Europe, having achieved annual growth of more than 40% in aggregate net profit over the past five years.

The sector is still highly fragmented, with 1 350 institutions, including 50 foreign-owned banks. The market is dominated by three state-owned banks (Sberbank, Vneshtorgbank and Gazprombank) that control over 50% of the market. However, foreign banking players are becoming increasingly important, accounting for some 12% of the countrys banking sector.

The annual growth of total banking assets recently accelerated to almost 40% in RUB [rouble] terms, while outstanding credit to households increased by 90% year-on-year. Although the current level of loans and deposits as a percentage of GDP (44% and 18%, respectively) is still relatively low, KBC expects significant catch-up growth in the years to come. Retail lending and corporate lending already demonstrate high growth rates (61% CAGR expected between 2004 and 2008).

Banking penetration is low compared to peer countries. Retail lending shows the highest growth rates in the banking market:
  • One of the most dynamic banking markets in Emerging Europe
  • Growth in retail and corporate lending: 60% and 30% respectively (CAGR between 2004 and 2008e)
  • Low level of banking penetration (loans to GDP: 44%, deposits to GDP: 18%)
  • Comparatively low level of non performing loans (Sector level NPL ratio at 3.2% as of Jan 2006)
  • Net profit growth 46% p.a. between 2002 and 2005 on sector level
Aggregated Banking Assets
The SEE peer group comprises Romania, Bulgaria, Croatia, Bosnia-Herzegovina, Serbia and Albania. CIS: Russia, Ukraine and Belarus. CE: Poland, Hungary, Czech Republic, Slovakia and Slovenia. Source: EIV, RZB, CBR

The Russian banking market is still very fragmented
  • 1 350 banks including 50 foreign-owned banks
  • Government/quasi-government owned banks continue to dominate the banking sector by controlling 50% of the market
  • The largest bank with a foreign controlling stake is IMB (UniCredit) with EUR 4.3 bn total assets (No. 9)
  • High efficiency, although slowly increasing cost/income ratios. Cost drivers are:
    • Falling interest rates Investment costs
    • Rising real estate prices
    • Turning into retail business
Income ratio on sector level
Source: CBR, UniCredit, Goldman Sachs

The Bank of Russia -

The Bank of Russia actively participates in drafting and refining regulations to conduct stock on exchanges, taking into account interests of different groups of stock market participants. The principal objectives are to ensure that trading is conducted without interruptions and to prevent abrupt fluctuations of the exchange rate of the ruble. For more information you can refer to a brief overview of current economic situation from the Bank of Russia.

During the last two years inflation in Russia has remained low and ruble devaluation rate is acceptable for short-term (up to 1 year) investments. Some information about Russian payment system.

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