Russia’s biggest banks show rise in higher-risk-weighted assets

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Russia’s two biggest banks, Sberbank and VTB, experienced a sharp rise in higher-risk-weighted exposures during the three months to the end of September, data from their third-quarter accounts shows. The jump illustrates how Russia’s banking sector is feeling increased strain after years of free-wheeling lending were ended by an economic downturn caused by low oil prices and Ukraine-related sanctions.

After rescuing two major banks — Otkritie and B&N — in August and September, Moscow is now trying to ensure other banks remain healthy. The central bank will be requiring higher capital levels from January. These demands are putting the capital levels of major banks, including Sberbank and VTB, under closer scrutiny. “Capital adequacy levels of the banking sector remain under close attention by the market players and analysts amid the overall turbulence and higher capital level requirements from January 1,” Natalia Berezina, senior analyst with Uralsib, said.

Sberbank and VTB, both state-controlled, hold more than half Russian retail deposits and are major corporate lenders, including to energy firms such as state oil group Rosneft.
Russian banks must disclose their assets according to grades of risk determined by the quality of the security underpinning them or whether a loan, for example, is being repaid regularly.

Using this yardstick, the central bank sets the level of capital a bank has to set aside to guard against losses. Both Sberbank and VTB had an increase in a higher-risk-weighted category of assets in the third quarter versus the second, data in their third-quarter accounts showed. VTB’s third-quarter accounts showed a quarterly increase of more than 500bn roubles ($8.45bn) in two high-risk categories of assets. Out of those, around 190bn roubles was classified as the highest risk-weighted assets, the accounts showed.

VTB’s core capital adequacy ratio in the third quarter was at 7.62%, down from 8.0% in the second quarter, as a result of an increase in risk-weighted assets, according to the bank’s third-quarter accounts. Core capital and base capital are the measures of financial strength most closely watched by regulators in Russia, where the minimum core capital ratio is currently 6.0%. From January 1, the central bank will raise the core capital ratio to 8.525% and the minimum base ratio to 7.025% for the most important banks, including Sberbank and VTB.

In a written statement to Reuters, VTB said that the banking group did not breach any capital level requirements and it planned to comply with all the new rules once its full-year net profit is calculated. Petr Paklin, assistant vice-president at credit rating agency Moody’s in Moscow, said the jump in the risk-weighted assets had pressed VTB’s capital. “The increase was driven by an expansion in credit portfolio…together with growing corporate foreign currency loans and securities held by non-residents,” he said.

Sberbank, Russia’s largest bank, had an increase of 1.5tn roubles in the category of assets with the highest risk weights during the third quarter, its accounts showed, or a 20% increase from the second quarter. In a written statement to Reuters, Sberbank said that it had to reclassify some it its assets following the reform of credit ratings in Russia. Sberbank said in its statement the assets consisted of corporate loans, including those in foreign currencies, debt security papers and some others.

Sources and photo-credits: Reuters, Gulf Times