July 13, 2014
July 13, 2014 This is bne's Russia banking weekly newsletter, a list of the top stories in region last week. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options here:http://businessneweurope.eu/users/subs.php BANKER TOP STORY 1. Sberbank turning to CBR for additional funding 2. China Says Consensus Reached on $100 Billion BRICS Bank 3. Eurozone bank worries – breaking the doom loop 4. Hungary Bank Loan Refund Costs Will Hurt Foreign Parents BANKER NEWS 5. Austrian central bank urges banks to remain in CEE 6. Hungary's Law on Retail Loans Increases Loss Expectations for Banks, a Credit Negative 7. RBI evaluating likely impact of Hungarian forex loans bill BANKER EA 8. Fitch says Uzbekistan's banking sector stable, structural weaknesses remain BANKER EE 9. Businessman Fetisov may buy assets of Russia's My Bank from DIA 10. Bank of Russia registered Chinese clearing 11. CBR says Ukrainian banks are source of risk for Russian lenders 12. NBU: Individuals' deposits 0.4% up in June 13. Oschadbank restores operation in Sloviansk, Kramatorsk 14. Otkritie to get 70% in new asset with Contact system 15. Promsvyazbank ratings under the radar 16. Russia Imposes New Banking Rules on State Companies 17. Russia's SMP Bank may ask for new DIA loan for Mosoblbank bailout 18. Russian Central Bank publishes banking sector data for June 19. Russian retail deposit growth slows to 8% y/y in June BANKER SE 20. IMF sees significant weaknesses in Moldova's banking system BANKER EE - FROM THE DAILIES 21. Alfa-Bank relatively well positioned in weakening Russian economy 22. Banks Watch June 2014 - Loan quality outlook remains risky 23. Banks: June RAS data: earnings volatility continues 24. CBR: Russia's banking sector assets growth slows to 0.3% in June 25. Corporate foreign debt down $1bn in 1H14 26. Federation Council approves raising deposit insurance to RUB1m 27. Russia Loans Shrinking as Sanctions Spur Retreat by Banks 28. Sberbank Gets $5.8Bln Central Bank Loan to Ease Liquidity Squeeze 29. Sberbank June 2014 RAS results: turning to CBR for additional funding 30. Sberbank, VTB units to be under ECB oversight since November BANKER CE - FROM THE DAILIES 31. Banks ask Hungarian president not to sign forex loans bill 32. Constitutional Court throws out appeals against Hungary's Savings Bank Act 33. Hungarian central bank withdraws licence of small savings bank 34. KBC warns of impact from Hungarian forex loans scheme
35. Lithuanian Central Bank Proposals to Strengthen Credit Unions Are Credit Positive 36. OTP Bank Pretax Profit to Take Hit From Hungary's Forex Bill 37. Poland confirms Bitcoin is a legal financial instrument 38. RBI sees Hungarian forex law costing up to €160m BANKER SE - FROM THE DAILIES 39. How Bulgaria’s Bank Run Affects Ukraine’s European Dream 40. Turkish lenders suffer 11.5 percent profit loss in May on gov’t limitations, lower interest revenues BANKER EA - FROM THE DAILIES 41. Loans in Azerbaijan drop in price BANKER TOP STORY 1. Sberbank turning to CBR for additional funding UralSib July 8, 2014 Lending still growing faster than deposits. Sberbank (SBER RX – Buy) released its June RAS results yesterday. Corporate lending contracted on a MoM basis (down 0.4%) for the first time this year as FX loans shrank due to 2.6% ruble appreciation. In YoY terms, corporate lending growth slowed to 24.8% from 25.9% in May, while the loan book expanded just 1.6% QoQ in 2Q14 versus 7.5% QoQ in 1Q14. Retail loans added 2% MoM and 7.1% QoQ, twice the increase in 1Q14. Retail deposits rose 0.9% MoM (but are still down 1% YtD), with YoY growth slowing to 11.8% from 13.4% in May. Corporate accounts lost 7% MoM and 7% QoQ following the sharp 22% increase in 1Q14. The slower growth in deposits probably motivated Sberbank to take out an additional RUB200 bln subordinated loan from the CBR despite the fact that it will not be included in capital until amendments are made to legislation. RAS COR still above 2% in 2Q14, but IFRS gauge should be lower. ROAE recovered to 18% in June from May’s 15% trough. The bank’s lower effective tax rate and reduced costs were among the main reasons for this. Net income fell 12% QoQ and ROAE dropped to 17% in 2Q14 from 20% in 1Q14 as the bank’s seasonally higher costs offset an increase in core income. Provisioning declined just 5% QoQ, with COR coming in at 1.6% for June and 2.1% for 2Q14 versus 2.3% in 1Q14. However, management earlier stated that the high RAS provisioning charges from April were already accounted for in the 1Q14 IFRS figures, so we would bet on COR dropping below 2% in the 2Q14 IFRS results. Sberbank remains in favorable position. The recent rhetoric coming from the government and the CBR appears to indicate that Sberbank is in a favorable position when it comes to state support, as it will be the only bank that is able to convert the subords it received in 2008 into perpetual debt instead of preferred shares. A final decision on the conversion has not yet been reached, but we see the fact that Sberbank has already been granted an additional loan from the CBR as supportive and believe that this loan will later become tier-2 capital, adding around 100 bps to N1 CAR. Sberbank’s shares remain fundamentally undervalued. We still see our Buy rating as valid from a long-term perspective, but the stock’s shorter-term performance still depends on market sentiment.
2. China Says Consensus Reached on $100 Billion BRICS Bank Moscow Times July 9, 2014 The five BRICS nations have reached a broad consensus on their $100 billion development bank though some differences remain, a senior Chinese diplomat said Monday ahead of a summit in Brazil next week to be attended by President Xi Jinping. The new bank will symbolize the growing influence of emerging economies in the global financial architecture long dominated by the U.S. and Europe through the International Monetary Fund and the World Bank. Leaders of Brazil, Russia, India, China and South Africa are expected to sign a treaty to launch the bank officially when they meet at a BRICS summit in the northern Brazilian city of Fortaleza on July 15. Negotiations to create the lender have dragged on for two years, with some members growing weary of China's desire to have a bigger stake in the bank by putting in more capital. A senior Brazilian government official said in May the five BRICS nations were likely to agree to fund the bank equally, giving them the same rights. Briefing reporters ahead of the summit, Chinese Vice Foreign Minister Li Baodong would not be drawn on the specifics of the share structure, but was optimistic. Read more here: http://www.bne.eu/content/china-says-consensus-reached-100billion-brics-bank Read more here: http://www.bne.eu/content/brics-create-new-development-bankbrazil-russias-finance-minister 3. Eurozone bank worries – breaking the doom loop VTB Capital July 13, 2014 European equity markets and bank stocks are being dented by fresh concerns over the health of certain parts of the Eurozone banking system. A week ago, the Austrian bank, Erste, saw its share price drop 13% over profit and balance sheet concerns. Over the years, many Austrian banks have considerable exposure to foreign denominated debt, mainly in Swiss francs, which has been used to help finance mortgages. However, mortgage debt is only reduced in terms of the domestic currency when the currency that is being used to borrow (Swiss francs) actually depreciates. Unfortunately, if the borrowing currency (Swiss francs) appreciates, then the value of the mortgage debt expressed in domestic currency terms goes up. This is clearly bad news for the mortgage holder. Some banks might have stoplosses that force borrowers to switch back into the domestic currency in the event of untoward moves in the borrowing currency that push the mortgage holder’s debt higher; however, it is not clear to what extent Austrian banks undertook strict risk management and it might be that the banks have considerable notional losses in terms of their lending exposure.
This week has seen the Portuguese bank, Espirito Santo, being hit by financial problems that resulted in the share prices of other European banks being marked down. At this stage, it might be premature to dismiss these problems as being minor in importance and being of local concern only. However, as the ECB undertakes its Asset Quality Review (AQR) of the Eurozone banking sector, it is likely that in the months ahead we will see similar stories of banks disclosing previously hidden levels of non-performing loans as they attempt to clean up their balance sheets and obtain the ECB’s seal of approval. In some senses, Eurozone banks since the debt and banking crisis started in 2010 have been let off the hook in terms of the necessary recapitalisation and restructuring. The ECB has (rightly) provided sufficient liquidity to the banks in order to help funding pressures especially when the ECB itself acknowledges that the monetary transmission mechanism in the Eurozone is impaired. This has resulted in a fragmentation of borrowing costs throughout the Eurozone and the deleveraging undertaken by Eurozone banks has contracted lending to the private sector and restrained the economic recovery. The ECB’s policy actions have inadvertently created another pressure on banks’ balance sheets by encouraging them to increase their exposure to domestic sovereign debt. In a particular sense, the Eurozone banks have indirectly done the quantitative easing (QE) that the ECB is directly prohibited from doing. In simple terms, the ECB has provided cheap funding to the banks who, in turn, bought domestic sovereign debt. This carry trade has worked well for the banks, as Eurozone bond yields have fallen dramatically and in some cases, yields have fallen to multi-century lows. The decline in bond yields, from a fundamental perspective, reflects the fall in Eurozone inflation (deflation in some cases), as well as the soft economic recovery that has been highlighted by the falls in industrial production reported this week for Germany, Italy and France. However, the Eurozone banks are at risk from adverse moves in bond yields, and balance sheet pressures might force them to take profits on their holdings. Already this week, peripheral bond spreads have started to widen having been compressed for some time. Italian banks, for example, have the biggest exposure to domestic sovereign debt for any banking system globally outside of Japan. So, are we seeing Eurozone Crisis Part II? We are be definitely alert to the risk of broader pressures, even though Portuguese bank assets are about EUR 500bn (some 1.5% of the Eurozone total), with foreign investors having relatively low exposure. European equity markets seem to have recovered their nerve this morning after yesterday’s market declines. But the same thing was being said about Thailand in the 1998 Asian crisis which unfolded dramatically from what seemed relatively minor developments in a small country. The same applies to Greece in the Eurozone crisis. These countries can often be the canary in the coal-mine. The bottom line is that Eurozone banks need to restructure and recapitalise. They have been slow to do this. The longer it takes, the greater the risk of a zombie banking system that encourages the ever-greening of non-performing loans, which in turn contributes to a zombie economy. For the Eurozone, it is the banking system that is key to ensuring a sustainable economic recovery. However, as the BIS noted recently, there is too much debt in the system – which has actually gone up since the start of the financial crisis.
In the Eurozone, government debt/GDP levels continue to rise and in many cases exceed 100%, which means that debt is moving onto an unsustainable path. The Eurozone’s debt trajectory is worsened by the absence of economic growth, which, as a matter of arithmetic, means that in terms of the debt/GDP ratio, the denominator is never large enough to bring the ratio onto a downward path. It is not just governments that have high and rising debt ratios. The IMF has previously noted that there is a considerable overhang of corporate debt in the Eurozone. Household debt levels vary, being relatively low in Germany but higher in countries such as Spain and Portugal. Obviously, from a policy perspective, uncertainties over the health of the Eurozone banking system do not alter the ECB’s accommodative policy decision. Even prior to the latest worries about the Eurozone banks, the key message from the ECB is that they stand ready to implement further stimulus and use unconventional measures to provide further support. However, if a banking crisis arrives, it is not so much a problem of liquidity but one of solvency. There are many Eurozone governments that simply cannot afford another bank bail-out. The German government is looking to bailin bondholders to any future bail-outs as a way of mitigating the cost to taxpayers. The political question is inevitably one of who bears the cost of such bailouts. German taxpayers will resist being on the hook for bailing out banks outside of Germany. Indeed, the official German position as expressed by Angela Merkel is not just opposition to a fully-fledged fiscal union but resistance to a banking union which implies joint liability. Banking union from the German perspective means greater supervision and regulation something the ECB is scheduled to take on as one of its responsibilities later this year. From the US perspective, the Fed is always ready to provide unlimited swap arrangements. Recall that previously, Eurozone banks, because their operations were international in nature, required dollar funding, which on occasion was the subject of a squeeze. Those funding problems are unlikely to re-appear given the Fed’s support. Of course, should there be a deeper banking crisis in the Eurozone, it gives Janet Yellen further reason to remain accommodative. US interest rates are unlikely to go up when there are banking problems in the Eurozone even though US banks might be completely unaffected. Indeed, US banks are in much better shape than their Eurozone counter-parts and perhaps the ECB should take heed of how the US authorities tackled the banking crisis and cut the doom-loop between the Eurozone banks and domestic sovereign debt. 4. Hungary Bank Loan Refund Costs Will Hurt Foreign Parents Fitch July 9, 2014 The potentially high costs of a new law requiring Hungarian banks to compensate loan customers will require material capital injections from foreign parents to restore regulatory capital and lending capacity, Fitch Ratings says. The law, passed on 4 July, requires lenders to repay borrowers for unilateral interest rate changes to retail loan contracts that were made by banks passing on some of their higher foreign-currency refinancing costs after the 2008 financial crisis. Lenders
are also required to compensate customers for exchange-rate spread charges on foreign-currency loans. The central bank's preliminary estimates of costs for the sector are HUF600bn-900bn (EUR2bn-3bn), according to Reuters. The compensation payments could wipe out around a third of the sector's equity at end-2013. But the impact will vary significantly from bank to bank as a handful of lenders generate most of the sector's profits and capital is tight in some large foreign-owned banks. Individual lenders' portfolio mix will also influence the final costs. OTP, Hungary's largest bank, estimated its compensation costs to be around HUF147bn (in the worst-case scenario), with over 80% arising from the unilateral interest-rate increases. This would lower the bank's 1Q14 Basel III common equity Tier 1 ratio by a relatively small 1.7pp to 14.7%, reflecting OTP's substantially stronger capital position compared with other Hungarian banks. Read more here: http://www.bne.eu/content/hungary-bank-loan-refund-costs-willhurt-foreign-parents In several interviews and press conferences yesterday, both policymakers and bank managements remarked on the likely course of legislation and the consequent loss for banks. EconMin Varga reiterated that Hungarian courts will rule by end-Oct on all cases where banks are challenging the order to repay retail borrowers "unfair" charges (exchange rate bid-ask spreads and unilateral rate hikes). Varga also reminded banks that the govt would review the size/scope of the bank tax only if banks unambiguously cooperated on getting rid of FX mortgage contracts from the market (this "threat" gains special significance because Hungary's govt has outright rejected the EC's demand that Hungary end special sector levies). Varga also ruled out a "phasing out" of FX loans, which was proposed by the Banks Assoc, and wants to convert the entire loan stock at one go this Dec (using a preferential exchange rate). The guiding principle will be that 1) monthly repayment installments be reduced substantially, and 2) FX borrowers should not be left better off than forint borrowers. These aspects have been known by the market for some time now; the new information emerging suggests that banks may have to book their entire loss (from converting loans at a non-market exchange rate) in the same period (and not staggered over multiple years as previously imagined); this is a disadvantage because it means that banks can offset the loss against the bank tax only one time, and not over several years. We shall watch the final legislation closely for such details. Read more here: http://www.bne.eu/content/hungarys-stance-forex-loansincreasingly-harsh BANKER NEWS 5. Austrian central bank urges banks to remain in CEE Reuters July 9, 2014
Austrian banks should stay in eastern Europe but need to heed risks and bolster their balance sheets to compete with more strongly capitalised rivals, the country's central bank said on Monday. Read more here: http://www.bne.eu/content/austrian-central-bank-urges-banksremain-cee 6. Hungary's Law on Retail Loans Increases Loss Expectations for Banks, a Credit Negative Moody’s July 11, 2014 Last Friday, the Parliament of Hungary approved a law that aims to clarify and expand the June 2014 Hungarian Supreme Court decision on the legitimacy of some key terms of foreign currency retail loans. The bill extends its scope to all retail loans, denominated both in local and foreign currency, and includes claims by borrowers for the past ten years. If signed by the head of the state in its current form, which we consider likely, the bill retroactively voids banks' exchange rate margins by requiring the use of the central bank's mid rate in all foreign exchange calculations for retail loans. The bill also requires that banks demonstrate that unilateral changes of interest rates and their effect on a borrower's payment obligations were clearly stated in the loan contracts. Read more here: http://www.bne.eu/content/hungarys-law-retail-loans-increasesloss-expectations-banks-credit-negative 7. RBI evaluating likely impact of Hungarian forex loans bill Erste July 9, 2014 RBI stated in a release that it will evaluate the impact of the new Hungarian loan refunding law in the next few days; a reliable assessment of costs was not possible in advance, as numerous details (e.g. limitation periods, scope of loan contracts affected, repayment procedures) were unknown right up to the passing of the law. Read more here: http://www.bne.eu/content/rbi-evaluating-likely-impact-hungarianforex-loans-bill BANKER EA 8. Fitch says Uzbekistan's banking sector stable, structural weaknesses remain AKI Press July 8, 2014 Fitch Ratings says in a newly published sector presentation that the outlook for Uzbekistan's banking sector remains stable, supported by consistently strong economic growth, the company said July 7. The Ratings noted the banks' credit profiles are undermined by constraints on currency conversion operations, directed lending, weak corporate governance and
heightened credit risks from the limited financial transparency of most Uzbek corporates. Read more here: http://www.akipress.com/news:544266?utm_source=twitterfeed&utm_mediu=twitte r BANKER EE 9. Businessman Fetisov may buy assets of Russia's My Bank from DIA bne July 9, 2014 Gleb Fetisov, the former owner of Russia's My Bank which was declared bankrupt in March, wants to buy assets of the bank from the Deposit Insurance Agency (DIA), according to a statement from Fetisov's representative seen by Prime. Fetisov is ready to buy all assets which the DIA will sell in order to redeem the bank's debt to creditors, as follows from the statement. The representatives will make the offer to the agency at the first meeting of the bank's creditors on Thursday. The central bank revoked the license from the bank in January. Insurance payments to depositors are estimated at RUB6.5bn. 10. Bank of Russia registered Chinese clearing bne July 10, 2014 The Bank of Russia registered UnionPay, a Russian division of China UnionPay, as a payment and clearing center, Banki.ru reported. Bank of China (Elos) acts as a settlement bank for UnionPay. 11. CBR says Ukrainian banks are source of risk for Russian lenders bne July 11, 2014 The Ukrainian business of banks is for the first time mentioned by the Bank of Russia as a source of risk in the review of financial stability released by the regulator for Q4 2013 and Q1 2014 and seen by Vedomosti. Read more here: http://www.bne.eu/content/cbr-says-ukrainian-banks-are-sourcerisk-russian-lenders 12. NBU: Individuals' deposits 0.4% up in June bne July 7, 2014 Deposits of individuals grew by 0.4% in June or by UAH1.5bn, not taking into account foreign exchange fluctuations, while in May 2014 deposits narrowed by 4.3% or UAH15.8bn, National Bank of Ukraine reported, according to Interfax.
"Despite the counterterrorist operation taking place in the east of the country, the emotional tension on the deposit market has considerably reduced. This is only the start… We expect that this month inflow of deposits to the banking system will grow," NBU said in the report. According to the report, depositors prefer short-term hryvnia deposits. According to the NBU, in June ending stocks of individuals on accounts at banks grew within 2-5% in the major part of the regions of Ukraine. "In some regions, in particular, in Kherson, Kirovohrad, Zakarpattia, Zhytomyr regions, funds of individuals on accounts at banks grew by 9%, 6% and 5.5% and 5.2% respectively," reads the report. 13. Oschadbank restores operation in Sloviansk, Kramatorsk bne July 9, 2014 The State Saving Bank of Ukraine (Oschadbank, Kyiv) has restored its operation in Sloviansk and Kramatorsk, Interfax reported citing bank's press service. "The operation of the bank has been restored: AMTs are operating, cards are being serviced, pensions and wages are being paid. I've got the evidence personally. We'll restore the operation of all departments in several days. We're staying calm and doing our work," reads the press release of the bank, citing Oschadbank Board Chairman Andriy Pyshny. 14. Otkritie to get 70% in new asset with Contact system bne July 9, 2014 Russia's Otkritie Financial Corporation and Russlavbank owned by Abdulzhelil Abdulkerimov have agreed to establish a holding in which they will contribute payment systems Rapida and Contact, with Otkritie getting 70% in the holding, business daily Kommersant reported Wednesday, citing banking sources. The value of deal may amount to about RUB8bn, with Contact being estimated at over RUB4bn, a source close to the sides said, the daily reported. One of the sources said that RUB4bn is a too high price for Contact because its closest rival, Unistream system with comparable turnover was earlier appraised at around RUB1bn. 15. Promsvyazbank ratings under the radar VTB Capital July 10, 2014 Promsvyazbank has seen two rating actions this week. First, S&P downgraded its credit rating for the bank from BB to BB- and changed its outlook to "Stable"; second, today, Moody's placed its Ba3 rating on review for downgrade. The rationales are similar: PSB's weak loss-absorption buffer without much clarity regarding the bank's ability to raise Tier I capital. These rating actions are not
surprising after two consecutive quarters of net losses for PSB (see Promsvyazbank: Disappointing 1Q14), but the timing largely reflects the review procedures at S&P and Moody's somewhat lagging events, in our view. S&P's rationale. S&P said it has changed its assessment of PSB's capital and earnings from "moderate" to "weak" on 1Q14 losses, even if the result was due to an "isolated" event (a default of a corporate borrower). Focused on common equity rather than "weaker forms of capital", S&P was apparently unimpressed by the bank's efforts to raise capital through AT1 and Tier II placements (most recently, USD 100mn in a private transaction in March). Despite its expectation of elevated credit losses in 2014, S&P changed its outlook to "stable": it expects PSB to be more resilient than similarly rated peers to worsening economic conditions. Moody's rationale. Moody's appears concerned with PSB's regulatory TCAR being just marginally above the 10% requirement, as well as the recent negative trends in asset quality. With its review, Moody's seeks to clarify the bank's ability to raise new capital over the next three months and the sustainability of PSB's "earninggenerating capacity". Moody's will proceed with the downgrade if PSB fails to improve its capital adequacy in the next three months or as a result of deterioration in asset quality. Our view. We did not find anything new in the rationales: PSB has run a relatively tight (below 11%) regulatory CAR since January. Indeed, PSB's capital adequacy just returned where it was in 2011-2012; back then, management often explained it as an implication of the strategy focused on maximising shareholder returns. Uncertainty about the bank's ability to strengthen its capital base is often a reason for a downgrade or review, while PSB's quarterly loss might have worked as a trigger. Potential 'double' downgrade will likely affect PSB bond spreads – especially if Moody's resolves its review with a downgrade to B1. At the same time, we are comfortable with the bank's senior debt, and do not see a convincing reason to sell into weakness. Mikhail Nikitin 16. Russia Imposes New Banking Rules on State Companies Moscow Times July 10, 2014 Russian state companies, the backbone of the economy, can only have accounts at banks with capital of no less than 10 billion rubles ($296 million) or at those with ties to the government, a senior finance ministry official said Thursday. The move, under discussion since June, is aimed at protecting some of Russia's largest companies from an economic downturn, worsened by Western sanctions over Ukraine, and to protect depositors in the case banks lose their licenses. Read more here: http://www.themoscowtimes.com/article/503248.html 17. Russia's SMP Bank may ask for new DIA loan for Mosoblbank bailout bne July 10, 2014
SMP Bank, controlled by Arkady and Boris Rotenberg, may ask the Deposit Insurance Agency (DIA) for an additional loan to bail out Moscow Region-based Mosoblbank, CEO of Mosoblbank Maxim Yegunov said Thursday at an online conference organized by banki.ru. ‚ÄúThere is a zero chance for us abandoning the bailout of the bank because SMP Bank has already undertaken liabilities of an investor. There is a possibility of us turning to the DIA for an additional loan," Yegunov said, cited by Prime. The DIA has granted SMP Bank a RUB96bn loan for 10 years to buy at least a 97% stake in Mosoblbank and its affiliates. The interest rate of the loan was not disclosed. 18. Russian Central Bank publishes banking sector data for June Sberbank CIB July 10, 2014 The Central Bank yesterday published headline banking sector data for June. ? Assets. Sector assets climbed 0.3% m-o-m, implying growth of 16% y-o-y and 7% YTD. ? Loans. Corporate loans declined 0.2% m-o-m, due largely to the revaluation of FX loans post ruble strengthening in June. Adjusted for that, growth would have been 0.6%. The y-o-y corporate loan growth tally slowed to a still-respectable 16%. Retail loans added 1.1% m-o-m, while y-o-y growth cooled further to 21%. Sberbank slightly underperformed the rest of the sector in corporate lending, but strongly outperformed in retail lending (2.0% versus 0.6%). ? Deposits. In June, retail deposits reversed the outflows seen in May, climbing 0.8%, though they are still down 0.4% YTD with y-o-y growth having decelerated to only 8%. Corporate funds declined 2.5% m-o-m. Sberbank saw slightly greater retail deposit inflow than the rest of the sector (0.9% versus 0.7%). ? Earnings. Total sector EBT was R451bn in 6m14, down 8% y-o-y. ? Overdue loans. The overdue loan ratio (which incorporates only the overdue portion of a loan) declined from 4.5% to 4.4% in corporate and was flat at 5.3% in retail. These ratios might have been impacted by some loan write-offs. Our view: We note a few interesting things from these numbers. First, we welcome some stability in overdue ratios, but because this could have easily been impacted by write-offs, we need to see the following months’ data to get some comfort. Second, the public does not seem to be in any rush to restore retail deposits in the system, as highlighted by negative YTD growth, so we probably need to see a prolonged period of low volatility in FX and easing of geopolitical tensions before there will be strong inflows. Third, Sberbank continues to strongly outpace the sector in retail lending, and we see little evidence of growth from consumer finance lenders.
19. Russian retail deposit growth slows to 8% y/y in June Alfa Bank July 10, 2014 The CBR yesterday reported preliminary banking statistics that indicate a material deterioration in the funding base of Russian banks in June. The key concern is very weak retail deposit growth that slowed to just 8% y/y from 10% y/y in May and 19% y/y in 2013, suggesting no recovery in retail deposit inflows following the March panic run. One explanation could be that the ongoing revocation of bank licenses in the small-bank segment combined with the persisting fear of foreign sanctions against large institutions are driving households mostly to prefer capital outflow rather than keep savings in local banks. Also, with persistently high inflationary expectations taken into account, the negative retail deposit trend may reflect an increased preference for consumption. However, in the worst but less likely case, it could mean some deterioration in the income trend. An additional concern is the material slowdown in corporate funding growth, which, according to our estimates, dropped to 12% y/y from the 16-20% y/y seen in the last six months, and remains an enigma for now. As a result, banks increased their exposure to CBR support by RUB350bn in June and RUB900 YTD in order to offset the weakness in the funding base. Combined with Finance Ministry deposits, the state is currently funding almost RUB7tr, or 11% of banking assets, which is close to the 13% level seen at the peak of the 2008-09 crisis. The continuing increase of the CBR’s quantitative exposure to banks lowers the importance of its interest rate policy in determining inflationary and FX expectations. BANKER SE 20. IMF sees significant weaknesses in Moldova's banking system Seenews July 10, 2014 The International Monetary Fund (IMF) said that significant weaknesses in Moldova's banking system require decisive action to ensure the stability and soundness of the financial sector.
Read more here: http://wire.seenews.com/news/imf-sees-significant-weaknesses-inmoldovas-banking-system-429418?utm_source=twitterfeed&utm_medium=twitter BANKER EE - FROM THE DAILIES 21. Alfa-Bank relatively well positioned in weakening Russian economy Moody’s July 11, 2014 Among Russia's three largest private banks, Alfa-Bank is best positioned to cope with the weakening outlook for the Russian economy says Moody's Investors Service in a new report published today. Read more here: http://www.bne.eu/content/alfa-bank-relatively-well-positionedweakening-russian-economy 22. Banks Watch June 2014 - Loan quality outlook remains risky VTB Capital July 9, 2014 In June, Russian banks continued to outperform their GEM peers, by 1.5%, but underperformed MSCI Russia by 3.1%. Among large caps, Sberbank rose 2.7%, while VTB fell 9.2%. Turkish banks lost 3.2%. Read more here: http://www.bne.eu/content/banks-watch-june-2014-loan-qualityoutlook-remains-risky 23. Banks: June RAS data: earnings volatility continues UralSib July 11, 2014 YoY growth decelerates. The Central Bank published the preliminary sector data for June yesterday, with trends generally reflecting those seen in Sberbank's figures released earlier. Corporate loans shrank 0.2% (but would have risen 0.5%, excluding ruble appreciation); YoY growth decelerated to 16.6% from 18.6% in May. Retail loans added 1.1% and YoY growth decelerated to 20.9% from 22.6% in May. Read more here: http://www.bne.eu/content/banks-june-ras-data-earningsvolatility-continues 24. CBR: Russia's banking sector assets growth slows to 0.3% in June bne July 11, 2014 The growth Russia's banking assets slowed down to 0.3% in June from 1.6% in May, the central bank said in a statement seen by Prime. Read more here: http://www.bne.eu/content/cbrrussias-banking-sector-assetsgrowth-slows-03-june 25. Corporate foreign debt down $1bn in 1H14 Alfa Bank July 11, 2014
The CBR yesterday provided data for 2Q14 foreign debt dynamics and revised its estimates for 1Q14. While corporate foreign debt was initially expected to grow by $4bn in 1Q14, the new estimate suggests that it actually dropped by $4bn, posting a very slight $3bn increase in 2Q14. Read more here: http://www.bne.eu/content/corporate-foreign-debt-down-1bn-1h14 26. Federation Council approves raising deposit insurance to RUB1m bne July 11, 2014 The Federation Council, the Russian parliament's upper house, on Wednesday, has approved a bill seeking to raise the insurance payment to depositors of banks which go bankrupt to RUB1m from RUB700,000 currently, Prime reports. Read more here: http://www.bne.eu/content/federation-council-approves-raisingdeposit-insurance-rub1m 27. Russia Loans Shrinking as Sanctions Spur Retreat by Banks Reuters July 9, 2014 Russian commodities producers from OAO Lukoil to OAOÊRosneft (ROSN)Êare feeling the squeeze from international sanctions as foreign banks cut lending to the lowest level since 2009. Read more here: http://www.bne.eu/content/russia-loans-shrinking-sanctions-spurretreat-banks 28. Sberbank Gets $5.8Bln Central Bank Loan to Ease Liquidity Squeeze Moscow Times July 9, 2014 Sberbank, Russia's largest bank, has received a 200 billion ruble ($5.8 billion) loan from the Central Bank at a time when the government is trying to give domestic banks more capacity to lend to help to reverse an economic slowdown. Read more here: http://www.bne.eu/content/sberbank-gets-58bln-central-bankloan-ease-liquidity-squeeze 29. Sberbank June 2014 RAS results: turning to CBR for additional funding UralSib July 9, 2014 Lending still growing faster than deposits. Sberbank (SBER RX ? Buy) released its June RAS results yesterday. Corporate lending contracted on a MoM basis (down 0.4%) for the first time this year as FX loans shrank due to 2.6% ruble appreciation. In YoY terms, corporate lending growth slowed to 24.8% from 25.9% in May, while the loan book expanded just 1.6% QoQ in 2Q14 versus 7.5% QoQ in 1Q14.
Read more here: http://www.bne.eu/content/sberbank-june-2014-ras-resultsturning-cbr-additional-funding 30. Sberbank, VTB units to be under ECB oversight since November bne July 9, 2014 The Austrian financial market control agency has put Sberbank Europe and VTB Bank Austria, affiliates of Russia's Sberbank and VTB, on the list of systemically important financial institutions and they will be under the European Central Bank's oversight since November, the agency said in a statement seen by Prime. Read more here: http://www.bne.eu/content/sberbank-vtb-units-be-under-ecboversight-november BANKER CE - FROM THE DAILIES 31. Banks ask Hungarian president not to sign forex loans bill MTI July 9, 2014 The Hungarian Banking Association hopes that President Ja_nos A_der will not sign the legislation on debtors' relief into law but will send it to the Constitutional Court for a preliminary review. Such a review is necessary in order to maintain legal certainty and because of deficiencies both in form and content, the association said on Friday. Read more here: http://www.bne.eu/content/banks-ask-hungarian-president-notsign-forex-loans-bill 32. Constitutional Court throws out appeals against Hungary's Savings Bank Act Portfolio.hu July 9, 2014 Hungary's Constitutional Court has rejected two judicial appeals requesting a constitutional review of the Savings Cooperative Integration Act, passed last year. In response to an appeal by a judge at the Veszprém City Court, the Constitutional Court has ruled that the clauses cited by the judge as potentially anti-constitutional were in compliance with the country's fundamental law. The Read more here: http://www.bne.eu/content/constitutional-court-throws-outappeals-against-hungarys-savings-bank-act 33. Hungarian central bank withdraws licence of small savings bank Reuters July 9, 2014 Hungary's central bank has withdrawn the licence of the small savings bank Orgovany es Videke due to serious shortcomings in its operations and has taken control of the bank, the central bank said in a statement on Friday.
Read more here: http://www.bne.eu/content/hungarian-central-bank-withdrawslicence-small-savings-bank 34. KBC warns of impact from Hungarian forex loans scheme Press release July 9, 2014 KBC Group wishes to inform the market and its stakeholders that new legislation approved on 4 July by the Hungarian parliament and applying to the entire Hungarian banking sector, will influence its results for the second quarter of 2014. Read more here: http://www.bne.eu/content/kbc-warns-impact-hungarian-forexloans-scheme 35. Lithuanian Central Bank Proposals to Strengthen Credit Unions Are Credit Positive Moody’s July 9, 2014 On Tuesday, the Bank of Lithuania, the country's central bank, said it will submit several proposals to legislators to strengthen the creditworthiness of Lithuanian credit unions. These measures would be credit positive for credit unions because they would strengthen capitalization and corporate governance. Read more here: http://www.bne.eu/content/lithuanian-central-bank-proposalsstrengthen-credit-unions-are-credit-positive 36. OTP Bank Pretax Profit to Take Hit From Hungary's Forex Bill WSJ July 9, 2014 Hungary's biggest lender OTP Bank Nyrt. said Friday that legislation approved in parliament earlier in the day will reduce its pretax profit by a hefty 25 billion forints ($109.5 million) in the second quarter. That amount is about HUF20 billion more than OTP had expected, the bank said. Read more here: http://www.bne.eu/content/otp-bank-pretax-profit-take-hithungarys-forex-bill 37. Poland confirms Bitcoin is a legal financial instrument Coin Desk July 11, 2014 Poland's deputy finance minister Wojciech Kowalczyk has released a document confirming that under the country's existing financial regulations, bitcoin can be considered a financial instrument. Read more here: http://www.bne.eu/content/poland-confirms-bitcoin-legal-financialinstrument 38. RBI sees Hungarian forex law costing up to €160m Reuters
July 11, 2014 Raiffeisen Bank International said it would take a charge of 120 to 160 million euros ($164 to $218 million) as a result of new legislation in Hungary requiring banks to compensate customers who took out foreign-exchange loans. Read more here: http://www.bne.eu/content/rbi-sees-hungarian-forex-law-costing€160m BANKER SE - FROM THE DAILIES 39. How Bulgaria’s Bank Run Affects Ukraine’s European Dream Bloomberg July 7, 2014 Joining the European Union was meant to give Bulgaria a fresh start. Try telling that to Anna Dimitrova. “Bulgaria didn’t gain from the EU as much as it could have, because it’s mismanaged by corrupt politicians,” said Dimitrova, a law student, in central Sofia. “Our politicians are not visionaries. Their horizon is too short.” Seven years after entering, Bulgaria has had three governments, remains the poorest of the bloc’s 28 nations and is repeatedly told by the EU to cut graft and corruption. In January, the EU said corruption “poses a significant challenge for the Bulgarian authorities.” The general weaknesses of the system were highlighted last week when two banks suffered runs. One was brought on by an “organized attack” of “criminal actions,” according to the central bank. The other was sparked by what media reports described as a feud between the majority shareholder and a large depositor, who is also a member of parliament. The two men exchanged death threats, according to Bulgaria’s chief prosecutor, Sotir Tsatsarov. Read more here: http://mobile.bloomberg.com/news/2014-07-03/how-bulgaria-sbank-run-affects-ukraine-s-european-dream.html 40. Turkish lenders suffer 11.5 percent profit loss in May on gov’t limitations, lower interest revenues Hurriyet Daily News July 8, 2014 Turkish lenders’ profits plunged 11.5 percent in May to 10.1 billion Turkish Liras as measures taken by the country’s economy managers as well as a retreat in interest incomes continued to cast worries on the sector, figures announced by the country’s banking watchdog have revealed. Squeezed by higher interest rates that curbed consumers’ loan appetite as well as limitations introduced on loan and installment payments, the sector suffered a steep profit decline of 44 percent in January. Moreover despite the drop in the momentum month by month, the downfall in profits continued in June, according to data announced by the Banking Regulation and Auditing Institution (BDDK).
Read more here: http://www.hurriyetdailynews.com/turkish-lenders-suffer-115percent-profit-loss-in-may-on-govt-limitations-lower-interestrevenues.aspx?pageID=238&nID=68790&NewsCatID=346 BANKER EA - FROM THE DAILIES 41. Loans in Azerbaijan drop in price Trend July 11, 2014 As of June 1, 2014, the Azerbaijani banks reduced interest rates on loans in local and foreign currencies compared to June 1, 2013, the statistical report of the Central Bank of Azerbaijan said. Read more here: http://www.bne.eu/content/loans-azerbaijan-drop-price
35. Lithuanian Central Bank Proposals to Strengthen Credit Unions Are Credit Positive 36. OTP Bank Pretax Profit to Take Hit From Hungary's Forex Bill 37. Poland confirms Bitcoin is a legal financial instrument 38. RBI sees Hungarian forex law costing up to €160m BANKER SE - FROM THE DAILIES 39. How Bulgaria’s Bank Run Affects Ukraine’s European Dream 40. Turkish lenders suffer 11.5 percent profit loss in May on gov’t limitations, lower interest revenues BANKER EA - FROM THE DAILIES 41. Loans in Azerbaijan drop in price BANKER TOP STORY 1. Sberbank turning to CBR for additional funding UralSib July 8, 2014 Lending still growing faster than deposits. Sberbank (SBER RX – Buy) released its June RAS results yesterday. Corporate lending contracted on a MoM basis (down 0.4%) for the first time this year as FX loans shrank due to 2.6% ruble appreciation. In YoY terms, corporate lending growth slowed to 24.8% from 25.9% in May, while the loan book expanded just 1.6% QoQ in 2Q14 versus 7.5% QoQ in 1Q14. Retail loans added 2% MoM and 7.1% QoQ, twice the increase in 1Q14. Retail deposits rose 0.9% MoM (but are still down 1% YtD), with YoY growth slowing to 11.8% from 13.4% in May. Corporate accounts lost 7% MoM and 7% QoQ following the sharp 22% increase in 1Q14. The slower growth in deposits probably motivated Sberbank to take out an additional RUB200 bln subordinated loan from the CBR despite the fact that it will not be included in capital until amendments are made to legislation. RAS COR still above 2% in 2Q14, but IFRS gauge should be lower. ROAE recovered to 18% in June from May’s 15% trough. The bank’s lower effective tax rate and reduced costs were among the main reasons for this. Net income fell 12% QoQ and ROAE dropped to 17% in 2Q14 from 20% in 1Q14 as the bank’s seasonally higher costs offset an increase in core income. Provisioning declined just 5% QoQ, with COR coming in at 1.6% for June and 2.1% for 2Q14 versus 2.3% in 1Q14. However, management earlier stated that the high RAS provisioning charges from April were already accounted for in the 1Q14 IFRS figures, so we would bet on COR dropping below 2% in the 2Q14 IFRS results. Sberbank remains in favorable position. The recent rhetoric coming from the government and the CBR appears to indicate that Sberbank is in a favorable position when it comes to state support, as it will be the only bank that is able to convert the subords it received in 2008 into perpetual debt instead of preferred shares. A final decision on the conversion has not yet been reached, but we see the fact that Sberbank has already been granted an additional loan from the CBR as supportive and believe that this loan will later become tier-2 capital, adding around 100 bps to N1 CAR. Sberbank’s shares remain fundamentally undervalued. We still see our Buy rating as valid from a long-term perspective, but the stock’s shorter-term performance still depends on market sentiment.
2. China Says Consensus Reached on $100 Billion BRICS Bank Moscow Times July 9, 2014 The five BRICS nations have reached a broad consensus on their $100 billion development bank though some differences remain, a senior Chinese diplomat said Monday ahead of a summit in Brazil next week to be attended by President Xi Jinping. The new bank will symbolize the growing influence of emerging economies in the global financial architecture long dominated by the U.S. and Europe through the International Monetary Fund and the World Bank. Leaders of Brazil, Russia, India, China and South Africa are expected to sign a treaty to launch the bank officially when they meet at a BRICS summit in the northern Brazilian city of Fortaleza on July 15. Negotiations to create the lender have dragged on for two years, with some members growing weary of China's desire to have a bigger stake in the bank by putting in more capital. A senior Brazilian government official said in May the five BRICS nations were likely to agree to fund the bank equally, giving them the same rights. Briefing reporters ahead of the summit, Chinese Vice Foreign Minister Li Baodong would not be drawn on the specifics of the share structure, but was optimistic. Read more here: http://www.bne.eu/content/china-says-consensus-reached-100billion-brics-bank Read more here: http://www.bne.eu/content/brics-create-new-development-bankbrazil-russias-finance-minister 3. Eurozone bank worries – breaking the doom loop VTB Capital July 13, 2014 European equity markets and bank stocks are being dented by fresh concerns over the health of certain parts of the Eurozone banking system. A week ago, the Austrian bank, Erste, saw its share price drop 13% over profit and balance sheet concerns. Over the years, many Austrian banks have considerable exposure to foreign denominated debt, mainly in Swiss francs, which has been used to help finance mortgages. However, mortgage debt is only reduced in terms of the domestic currency when the currency that is being used to borrow (Swiss francs) actually depreciates. Unfortunately, if the borrowing currency (Swiss francs) appreciates, then the value of the mortgage debt expressed in domestic currency terms goes up. This is clearly bad news for the mortgage holder. Some banks might have stoplosses that force borrowers to switch back into the domestic currency in the event of untoward moves in the borrowing currency that push the mortgage holder’s debt higher; however, it is not clear to what extent Austrian banks undertook strict risk management and it might be that the banks have considerable notional losses in terms of their lending exposure.
This week has seen the Portuguese bank, Espirito Santo, being hit by financial problems that resulted in the share prices of other European banks being marked down. At this stage, it might be premature to dismiss these problems as being minor in importance and being of local concern only. However, as the ECB undertakes its Asset Quality Review (AQR) of the Eurozone banking sector, it is likely that in the months ahead we will see similar stories of banks disclosing previously hidden levels of non-performing loans as they attempt to clean up their balance sheets and obtain the ECB’s seal of approval. In some senses, Eurozone banks since the debt and banking crisis started in 2010 have been let off the hook in terms of the necessary recapitalisation and restructuring. The ECB has (rightly) provided sufficient liquidity to the banks in order to help funding pressures especially when the ECB itself acknowledges that the monetary transmission mechanism in the Eurozone is impaired. This has resulted in a fragmentation of borrowing costs throughout the Eurozone and the deleveraging undertaken by Eurozone banks has contracted lending to the private sector and restrained the economic recovery. The ECB’s policy actions have inadvertently created another pressure on banks’ balance sheets by encouraging them to increase their exposure to domestic sovereign debt. In a particular sense, the Eurozone banks have indirectly done the quantitative easing (QE) that the ECB is directly prohibited from doing. In simple terms, the ECB has provided cheap funding to the banks who, in turn, bought domestic sovereign debt. This carry trade has worked well for the banks, as Eurozone bond yields have fallen dramatically and in some cases, yields have fallen to multi-century lows. The decline in bond yields, from a fundamental perspective, reflects the fall in Eurozone inflation (deflation in some cases), as well as the soft economic recovery that has been highlighted by the falls in industrial production reported this week for Germany, Italy and France. However, the Eurozone banks are at risk from adverse moves in bond yields, and balance sheet pressures might force them to take profits on their holdings. Already this week, peripheral bond spreads have started to widen having been compressed for some time. Italian banks, for example, have the biggest exposure to domestic sovereign debt for any banking system globally outside of Japan. So, are we seeing Eurozone Crisis Part II? We are be definitely alert to the risk of broader pressures, even though Portuguese bank assets are about EUR 500bn (some 1.5% of the Eurozone total), with foreign investors having relatively low exposure. European equity markets seem to have recovered their nerve this morning after yesterday’s market declines. But the same thing was being said about Thailand in the 1998 Asian crisis which unfolded dramatically from what seemed relatively minor developments in a small country. The same applies to Greece in the Eurozone crisis. These countries can often be the canary in the coal-mine. The bottom line is that Eurozone banks need to restructure and recapitalise. They have been slow to do this. The longer it takes, the greater the risk of a zombie banking system that encourages the ever-greening of non-performing loans, which in turn contributes to a zombie economy. For the Eurozone, it is the banking system that is key to ensuring a sustainable economic recovery. However, as the BIS noted recently, there is too much debt in the system – which has actually gone up since the start of the financial crisis.
In the Eurozone, government debt/GDP levels continue to rise and in many cases exceed 100%, which means that debt is moving onto an unsustainable path. The Eurozone’s debt trajectory is worsened by the absence of economic growth, which, as a matter of arithmetic, means that in terms of the debt/GDP ratio, the denominator is never large enough to bring the ratio onto a downward path. It is not just governments that have high and rising debt ratios. The IMF has previously noted that there is a considerable overhang of corporate debt in the Eurozone. Household debt levels vary, being relatively low in Germany but higher in countries such as Spain and Portugal. Obviously, from a policy perspective, uncertainties over the health of the Eurozone banking system do not alter the ECB’s accommodative policy decision. Even prior to the latest worries about the Eurozone banks, the key message from the ECB is that they stand ready to implement further stimulus and use unconventional measures to provide further support. However, if a banking crisis arrives, it is not so much a problem of liquidity but one of solvency. There are many Eurozone governments that simply cannot afford another bank bail-out. The German government is looking to bailin bondholders to any future bail-outs as a way of mitigating the cost to taxpayers. The political question is inevitably one of who bears the cost of such bailouts. German taxpayers will resist being on the hook for bailing out banks outside of Germany. Indeed, the official German position as expressed by Angela Merkel is not just opposition to a fully-fledged fiscal union but resistance to a banking union which implies joint liability. Banking union from the German perspective means greater supervision and regulation something the ECB is scheduled to take on as one of its responsibilities later this year. From the US perspective, the Fed is always ready to provide unlimited swap arrangements. Recall that previously, Eurozone banks, because their operations were international in nature, required dollar funding, which on occasion was the subject of a squeeze. Those funding problems are unlikely to re-appear given the Fed’s support. Of course, should there be a deeper banking crisis in the Eurozone, it gives Janet Yellen further reason to remain accommodative. US interest rates are unlikely to go up when there are banking problems in the Eurozone even though US banks might be completely unaffected. Indeed, US banks are in much better shape than their Eurozone counter-parts and perhaps the ECB should take heed of how the US authorities tackled the banking crisis and cut the doom-loop between the Eurozone banks and domestic sovereign debt. 4. Hungary Bank Loan Refund Costs Will Hurt Foreign Parents Fitch July 9, 2014 The potentially high costs of a new law requiring Hungarian banks to compensate loan customers will require material capital injections from foreign parents to restore regulatory capital and lending capacity, Fitch Ratings says. The law, passed on 4 July, requires lenders to repay borrowers for unilateral interest rate changes to retail loan contracts that were made by banks passing on some of their higher foreign-currency refinancing costs after the 2008 financial crisis. Lenders
are also required to compensate customers for exchange-rate spread charges on foreign-currency loans. The central bank's preliminary estimates of costs for the sector are HUF600bn-900bn (EUR2bn-3bn), according to Reuters. The compensation payments could wipe out around a third of the sector's equity at end-2013. But the impact will vary significantly from bank to bank as a handful of lenders generate most of the sector's profits and capital is tight in some large foreign-owned banks. Individual lenders' portfolio mix will also influence the final costs. OTP, Hungary's largest bank, estimated its compensation costs to be around HUF147bn (in the worst-case scenario), with over 80% arising from the unilateral interest-rate increases. This would lower the bank's 1Q14 Basel III common equity Tier 1 ratio by a relatively small 1.7pp to 14.7%, reflecting OTP's substantially stronger capital position compared with other Hungarian banks. Read more here: http://www.bne.eu/content/hungary-bank-loan-refund-costs-willhurt-foreign-parents In several interviews and press conferences yesterday, both policymakers and bank managements remarked on the likely course of legislation and the consequent loss for banks. EconMin Varga reiterated that Hungarian courts will rule by end-Oct on all cases where banks are challenging the order to repay retail borrowers "unfair" charges (exchange rate bid-ask spreads and unilateral rate hikes). Varga also reminded banks that the govt would review the size/scope of the bank tax only if banks unambiguously cooperated on getting rid of FX mortgage contracts from the market (this "threat" gains special significance because Hungary's govt has outright rejected the EC's demand that Hungary end special sector levies). Varga also ruled out a "phasing out" of FX loans, which was proposed by the Banks Assoc, and wants to convert the entire loan stock at one go this Dec (using a preferential exchange rate). The guiding principle will be that 1) monthly repayment installments be reduced substantially, and 2) FX borrowers should not be left better off than forint borrowers. These aspects have been known by the market for some time now; the new information emerging suggests that banks may have to book their entire loss (from converting loans at a non-market exchange rate) in the same period (and not staggered over multiple years as previously imagined); this is a disadvantage because it means that banks can offset the loss against the bank tax only one time, and not over several years. We shall watch the final legislation closely for such details. Read more here: http://www.bne.eu/content/hungarys-stance-forex-loansincreasingly-harsh BANKER NEWS 5. Austrian central bank urges banks to remain in CEE Reuters July 9, 2014
Austrian banks should stay in eastern Europe but need to heed risks and bolster their balance sheets to compete with more strongly capitalised rivals, the country's central bank said on Monday. Read more here: http://www.bne.eu/content/austrian-central-bank-urges-banksremain-cee 6. Hungary's Law on Retail Loans Increases Loss Expectations for Banks, a Credit Negative Moody’s July 11, 2014 Last Friday, the Parliament of Hungary approved a law that aims to clarify and expand the June 2014 Hungarian Supreme Court decision on the legitimacy of some key terms of foreign currency retail loans. The bill extends its scope to all retail loans, denominated both in local and foreign currency, and includes claims by borrowers for the past ten years. If signed by the head of the state in its current form, which we consider likely, the bill retroactively voids banks' exchange rate margins by requiring the use of the central bank's mid rate in all foreign exchange calculations for retail loans. The bill also requires that banks demonstrate that unilateral changes of interest rates and their effect on a borrower's payment obligations were clearly stated in the loan contracts. Read more here: http://www.bne.eu/content/hungarys-law-retail-loans-increasesloss-expectations-banks-credit-negative 7. RBI evaluating likely impact of Hungarian forex loans bill Erste July 9, 2014 RBI stated in a release that it will evaluate the impact of the new Hungarian loan refunding law in the next few days; a reliable assessment of costs was not possible in advance, as numerous details (e.g. limitation periods, scope of loan contracts affected, repayment procedures) were unknown right up to the passing of the law. Read more here: http://www.bne.eu/content/rbi-evaluating-likely-impact-hungarianforex-loans-bill BANKER EA 8. Fitch says Uzbekistan's banking sector stable, structural weaknesses remain AKI Press July 8, 2014 Fitch Ratings says in a newly published sector presentation that the outlook for Uzbekistan's banking sector remains stable, supported by consistently strong economic growth, the company said July 7. The Ratings noted the banks' credit profiles are undermined by constraints on currency conversion operations, directed lending, weak corporate governance and
heightened credit risks from the limited financial transparency of most Uzbek corporates. Read more here: http://www.akipress.com/news:544266?utm_source=twitterfeed&utm_mediu=twitte r BANKER EE 9. Businessman Fetisov may buy assets of Russia's My Bank from DIA bne July 9, 2014 Gleb Fetisov, the former owner of Russia's My Bank which was declared bankrupt in March, wants to buy assets of the bank from the Deposit Insurance Agency (DIA), according to a statement from Fetisov's representative seen by Prime. Fetisov is ready to buy all assets which the DIA will sell in order to redeem the bank's debt to creditors, as follows from the statement. The representatives will make the offer to the agency at the first meeting of the bank's creditors on Thursday. The central bank revoked the license from the bank in January. Insurance payments to depositors are estimated at RUB6.5bn. 10. Bank of Russia registered Chinese clearing bne July 10, 2014 The Bank of Russia registered UnionPay, a Russian division of China UnionPay, as a payment and clearing center, Banki.ru reported. Bank of China (Elos) acts as a settlement bank for UnionPay. 11. CBR says Ukrainian banks are source of risk for Russian lenders bne July 11, 2014 The Ukrainian business of banks is for the first time mentioned by the Bank of Russia as a source of risk in the review of financial stability released by the regulator for Q4 2013 and Q1 2014 and seen by Vedomosti. Read more here: http://www.bne.eu/content/cbr-says-ukrainian-banks-are-sourcerisk-russian-lenders 12. NBU: Individuals' deposits 0.4% up in June bne July 7, 2014 Deposits of individuals grew by 0.4% in June or by UAH1.5bn, not taking into account foreign exchange fluctuations, while in May 2014 deposits narrowed by 4.3% or UAH15.8bn, National Bank of Ukraine reported, according to Interfax.
"Despite the counterterrorist operation taking place in the east of the country, the emotional tension on the deposit market has considerably reduced. This is only the start… We expect that this month inflow of deposits to the banking system will grow," NBU said in the report. According to the report, depositors prefer short-term hryvnia deposits. According to the NBU, in June ending stocks of individuals on accounts at banks grew within 2-5% in the major part of the regions of Ukraine. "In some regions, in particular, in Kherson, Kirovohrad, Zakarpattia, Zhytomyr regions, funds of individuals on accounts at banks grew by 9%, 6% and 5.5% and 5.2% respectively," reads the report. 13. Oschadbank restores operation in Sloviansk, Kramatorsk bne July 9, 2014 The State Saving Bank of Ukraine (Oschadbank, Kyiv) has restored its operation in Sloviansk and Kramatorsk, Interfax reported citing bank's press service. "The operation of the bank has been restored: AMTs are operating, cards are being serviced, pensions and wages are being paid. I've got the evidence personally. We'll restore the operation of all departments in several days. We're staying calm and doing our work," reads the press release of the bank, citing Oschadbank Board Chairman Andriy Pyshny. 14. Otkritie to get 70% in new asset with Contact system bne July 9, 2014 Russia's Otkritie Financial Corporation and Russlavbank owned by Abdulzhelil Abdulkerimov have agreed to establish a holding in which they will contribute payment systems Rapida and Contact, with Otkritie getting 70% in the holding, business daily Kommersant reported Wednesday, citing banking sources. The value of deal may amount to about RUB8bn, with Contact being estimated at over RUB4bn, a source close to the sides said, the daily reported. One of the sources said that RUB4bn is a too high price for Contact because its closest rival, Unistream system with comparable turnover was earlier appraised at around RUB1bn. 15. Promsvyazbank ratings under the radar VTB Capital July 10, 2014 Promsvyazbank has seen two rating actions this week. First, S&P downgraded its credit rating for the bank from BB to BB- and changed its outlook to "Stable"; second, today, Moody's placed its Ba3 rating on review for downgrade. The rationales are similar: PSB's weak loss-absorption buffer without much clarity regarding the bank's ability to raise Tier I capital. These rating actions are not
surprising after two consecutive quarters of net losses for PSB (see Promsvyazbank: Disappointing 1Q14), but the timing largely reflects the review procedures at S&P and Moody's somewhat lagging events, in our view. S&P's rationale. S&P said it has changed its assessment of PSB's capital and earnings from "moderate" to "weak" on 1Q14 losses, even if the result was due to an "isolated" event (a default of a corporate borrower). Focused on common equity rather than "weaker forms of capital", S&P was apparently unimpressed by the bank's efforts to raise capital through AT1 and Tier II placements (most recently, USD 100mn in a private transaction in March). Despite its expectation of elevated credit losses in 2014, S&P changed its outlook to "stable": it expects PSB to be more resilient than similarly rated peers to worsening economic conditions. Moody's rationale. Moody's appears concerned with PSB's regulatory TCAR being just marginally above the 10% requirement, as well as the recent negative trends in asset quality. With its review, Moody's seeks to clarify the bank's ability to raise new capital over the next three months and the sustainability of PSB's "earninggenerating capacity". Moody's will proceed with the downgrade if PSB fails to improve its capital adequacy in the next three months or as a result of deterioration in asset quality. Our view. We did not find anything new in the rationales: PSB has run a relatively tight (below 11%) regulatory CAR since January. Indeed, PSB's capital adequacy just returned where it was in 2011-2012; back then, management often explained it as an implication of the strategy focused on maximising shareholder returns. Uncertainty about the bank's ability to strengthen its capital base is often a reason for a downgrade or review, while PSB's quarterly loss might have worked as a trigger. Potential 'double' downgrade will likely affect PSB bond spreads – especially if Moody's resolves its review with a downgrade to B1. At the same time, we are comfortable with the bank's senior debt, and do not see a convincing reason to sell into weakness. Mikhail Nikitin 16. Russia Imposes New Banking Rules on State Companies Moscow Times July 10, 2014 Russian state companies, the backbone of the economy, can only have accounts at banks with capital of no less than 10 billion rubles ($296 million) or at those with ties to the government, a senior finance ministry official said Thursday. The move, under discussion since June, is aimed at protecting some of Russia's largest companies from an economic downturn, worsened by Western sanctions over Ukraine, and to protect depositors in the case banks lose their licenses. Read more here: http://www.themoscowtimes.com/article/503248.html 17. Russia's SMP Bank may ask for new DIA loan for Mosoblbank bailout bne July 10, 2014
SMP Bank, controlled by Arkady and Boris Rotenberg, may ask the Deposit Insurance Agency (DIA) for an additional loan to bail out Moscow Region-based Mosoblbank, CEO of Mosoblbank Maxim Yegunov said Thursday at an online conference organized by banki.ru. ‚ÄúThere is a zero chance for us abandoning the bailout of the bank because SMP Bank has already undertaken liabilities of an investor. There is a possibility of us turning to the DIA for an additional loan," Yegunov said, cited by Prime. The DIA has granted SMP Bank a RUB96bn loan for 10 years to buy at least a 97% stake in Mosoblbank and its affiliates. The interest rate of the loan was not disclosed. 18. Russian Central Bank publishes banking sector data for June Sberbank CIB July 10, 2014 The Central Bank yesterday published headline banking sector data for June. ? Assets. Sector assets climbed 0.3% m-o-m, implying growth of 16% y-o-y and 7% YTD. ? Loans. Corporate loans declined 0.2% m-o-m, due largely to the revaluation of FX loans post ruble strengthening in June. Adjusted for that, growth would have been 0.6%. The y-o-y corporate loan growth tally slowed to a still-respectable 16%. Retail loans added 1.1% m-o-m, while y-o-y growth cooled further to 21%. Sberbank slightly underperformed the rest of the sector in corporate lending, but strongly outperformed in retail lending (2.0% versus 0.6%). ? Deposits. In June, retail deposits reversed the outflows seen in May, climbing 0.8%, though they are still down 0.4% YTD with y-o-y growth having decelerated to only 8%. Corporate funds declined 2.5% m-o-m. Sberbank saw slightly greater retail deposit inflow than the rest of the sector (0.9% versus 0.7%). ? Earnings. Total sector EBT was R451bn in 6m14, down 8% y-o-y. ? Overdue loans. The overdue loan ratio (which incorporates only the overdue portion of a loan) declined from 4.5% to 4.4% in corporate and was flat at 5.3% in retail. These ratios might have been impacted by some loan write-offs. Our view: We note a few interesting things from these numbers. First, we welcome some stability in overdue ratios, but because this could have easily been impacted by write-offs, we need to see the following months’ data to get some comfort. Second, the public does not seem to be in any rush to restore retail deposits in the system, as highlighted by negative YTD growth, so we probably need to see a prolonged period of low volatility in FX and easing of geopolitical tensions before there will be strong inflows. Third, Sberbank continues to strongly outpace the sector in retail lending, and we see little evidence of growth from consumer finance lenders.
19. Russian retail deposit growth slows to 8% y/y in June Alfa Bank July 10, 2014 The CBR yesterday reported preliminary banking statistics that indicate a material deterioration in the funding base of Russian banks in June. The key concern is very weak retail deposit growth that slowed to just 8% y/y from 10% y/y in May and 19% y/y in 2013, suggesting no recovery in retail deposit inflows following the March panic run. One explanation could be that the ongoing revocation of bank licenses in the small-bank segment combined with the persisting fear of foreign sanctions against large institutions are driving households mostly to prefer capital outflow rather than keep savings in local banks. Also, with persistently high inflationary expectations taken into account, the negative retail deposit trend may reflect an increased preference for consumption. However, in the worst but less likely case, it could mean some deterioration in the income trend. An additional concern is the material slowdown in corporate funding growth, which, according to our estimates, dropped to 12% y/y from the 16-20% y/y seen in the last six months, and remains an enigma for now. As a result, banks increased their exposure to CBR support by RUB350bn in June and RUB900 YTD in order to offset the weakness in the funding base. Combined with Finance Ministry deposits, the state is currently funding almost RUB7tr, or 11% of banking assets, which is close to the 13% level seen at the peak of the 2008-09 crisis. The continuing increase of the CBR’s quantitative exposure to banks lowers the importance of its interest rate policy in determining inflationary and FX expectations. BANKER SE 20. IMF sees significant weaknesses in Moldova's banking system Seenews July 10, 2014 The International Monetary Fund (IMF) said that significant weaknesses in Moldova's banking system require decisive action to ensure the stability and soundness of the financial sector.
Read more here: http://wire.seenews.com/news/imf-sees-significant-weaknesses-inmoldovas-banking-system-429418?utm_source=twitterfeed&utm_medium=twitter BANKER EE - FROM THE DAILIES 21. Alfa-Bank relatively well positioned in weakening Russian economy Moody’s July 11, 2014 Among Russia's three largest private banks, Alfa-Bank is best positioned to cope with the weakening outlook for the Russian economy says Moody's Investors Service in a new report published today. Read more here: http://www.bne.eu/content/alfa-bank-relatively-well-positionedweakening-russian-economy 22. Banks Watch June 2014 - Loan quality outlook remains risky VTB Capital July 9, 2014 In June, Russian banks continued to outperform their GEM peers, by 1.5%, but underperformed MSCI Russia by 3.1%. Among large caps, Sberbank rose 2.7%, while VTB fell 9.2%. Turkish banks lost 3.2%. Read more here: http://www.bne.eu/content/banks-watch-june-2014-loan-qualityoutlook-remains-risky 23. Banks: June RAS data: earnings volatility continues UralSib July 11, 2014 YoY growth decelerates. The Central Bank published the preliminary sector data for June yesterday, with trends generally reflecting those seen in Sberbank's figures released earlier. Corporate loans shrank 0.2% (but would have risen 0.5%, excluding ruble appreciation); YoY growth decelerated to 16.6% from 18.6% in May. Retail loans added 1.1% and YoY growth decelerated to 20.9% from 22.6% in May. Read more here: http://www.bne.eu/content/banks-june-ras-data-earningsvolatility-continues 24. CBR: Russia's banking sector assets growth slows to 0.3% in June bne July 11, 2014 The growth Russia's banking assets slowed down to 0.3% in June from 1.6% in May, the central bank said in a statement seen by Prime. Read more here: http://www.bne.eu/content/cbrrussias-banking-sector-assetsgrowth-slows-03-june 25. Corporate foreign debt down $1bn in 1H14 Alfa Bank July 11, 2014
The CBR yesterday provided data for 2Q14 foreign debt dynamics and revised its estimates for 1Q14. While corporate foreign debt was initially expected to grow by $4bn in 1Q14, the new estimate suggests that it actually dropped by $4bn, posting a very slight $3bn increase in 2Q14. Read more here: http://www.bne.eu/content/corporate-foreign-debt-down-1bn-1h14 26. Federation Council approves raising deposit insurance to RUB1m bne July 11, 2014 The Federation Council, the Russian parliament's upper house, on Wednesday, has approved a bill seeking to raise the insurance payment to depositors of banks which go bankrupt to RUB1m from RUB700,000 currently, Prime reports. Read more here: http://www.bne.eu/content/federation-council-approves-raisingdeposit-insurance-rub1m 27. Russia Loans Shrinking as Sanctions Spur Retreat by Banks Reuters July 9, 2014 Russian commodities producers from OAO Lukoil to OAOÊRosneft (ROSN)Êare feeling the squeeze from international sanctions as foreign banks cut lending to the lowest level since 2009. Read more here: http://www.bne.eu/content/russia-loans-shrinking-sanctions-spurretreat-banks 28. Sberbank Gets $5.8Bln Central Bank Loan to Ease Liquidity Squeeze Moscow Times July 9, 2014 Sberbank, Russia's largest bank, has received a 200 billion ruble ($5.8 billion) loan from the Central Bank at a time when the government is trying to give domestic banks more capacity to lend to help to reverse an economic slowdown. Read more here: http://www.bne.eu/content/sberbank-gets-58bln-central-bankloan-ease-liquidity-squeeze 29. Sberbank June 2014 RAS results: turning to CBR for additional funding UralSib July 9, 2014 Lending still growing faster than deposits. Sberbank (SBER RX ? Buy) released its June RAS results yesterday. Corporate lending contracted on a MoM basis (down 0.4%) for the first time this year as FX loans shrank due to 2.6% ruble appreciation. In YoY terms, corporate lending growth slowed to 24.8% from 25.9% in May, while the loan book expanded just 1.6% QoQ in 2Q14 versus 7.5% QoQ in 1Q14.
Read more here: http://www.bne.eu/content/sberbank-june-2014-ras-resultsturning-cbr-additional-funding 30. Sberbank, VTB units to be under ECB oversight since November bne July 9, 2014 The Austrian financial market control agency has put Sberbank Europe and VTB Bank Austria, affiliates of Russia's Sberbank and VTB, on the list of systemically important financial institutions and they will be under the European Central Bank's oversight since November, the agency said in a statement seen by Prime. Read more here: http://www.bne.eu/content/sberbank-vtb-units-be-under-ecboversight-november BANKER CE - FROM THE DAILIES 31. Banks ask Hungarian president not to sign forex loans bill MTI July 9, 2014 The Hungarian Banking Association hopes that President Ja_nos A_der will not sign the legislation on debtors' relief into law but will send it to the Constitutional Court for a preliminary review. Such a review is necessary in order to maintain legal certainty and because of deficiencies both in form and content, the association said on Friday. Read more here: http://www.bne.eu/content/banks-ask-hungarian-president-notsign-forex-loans-bill 32. Constitutional Court throws out appeals against Hungary's Savings Bank Act Portfolio.hu July 9, 2014 Hungary's Constitutional Court has rejected two judicial appeals requesting a constitutional review of the Savings Cooperative Integration Act, passed last year. In response to an appeal by a judge at the Veszprém City Court, the Constitutional Court has ruled that the clauses cited by the judge as potentially anti-constitutional were in compliance with the country's fundamental law. The Read more here: http://www.bne.eu/content/constitutional-court-throws-outappeals-against-hungarys-savings-bank-act 33. Hungarian central bank withdraws licence of small savings bank Reuters July 9, 2014 Hungary's central bank has withdrawn the licence of the small savings bank Orgovany es Videke due to serious shortcomings in its operations and has taken control of the bank, the central bank said in a statement on Friday.
Read more here: http://www.bne.eu/content/hungarian-central-bank-withdrawslicence-small-savings-bank 34. KBC warns of impact from Hungarian forex loans scheme Press release July 9, 2014 KBC Group wishes to inform the market and its stakeholders that new legislation approved on 4 July by the Hungarian parliament and applying to the entire Hungarian banking sector, will influence its results for the second quarter of 2014. Read more here: http://www.bne.eu/content/kbc-warns-impact-hungarian-forexloans-scheme 35. Lithuanian Central Bank Proposals to Strengthen Credit Unions Are Credit Positive Moody’s July 9, 2014 On Tuesday, the Bank of Lithuania, the country's central bank, said it will submit several proposals to legislators to strengthen the creditworthiness of Lithuanian credit unions. These measures would be credit positive for credit unions because they would strengthen capitalization and corporate governance. Read more here: http://www.bne.eu/content/lithuanian-central-bank-proposalsstrengthen-credit-unions-are-credit-positive 36. OTP Bank Pretax Profit to Take Hit From Hungary's Forex Bill WSJ July 9, 2014 Hungary's biggest lender OTP Bank Nyrt. said Friday that legislation approved in parliament earlier in the day will reduce its pretax profit by a hefty 25 billion forints ($109.5 million) in the second quarter. That amount is about HUF20 billion more than OTP had expected, the bank said. Read more here: http://www.bne.eu/content/otp-bank-pretax-profit-take-hithungarys-forex-bill 37. Poland confirms Bitcoin is a legal financial instrument Coin Desk July 11, 2014 Poland's deputy finance minister Wojciech Kowalczyk has released a document confirming that under the country's existing financial regulations, bitcoin can be considered a financial instrument. Read more here: http://www.bne.eu/content/poland-confirms-bitcoin-legal-financialinstrument 38. RBI sees Hungarian forex law costing up to €160m Reuters
July 11, 2014 Raiffeisen Bank International said it would take a charge of 120 to 160 million euros ($164 to $218 million) as a result of new legislation in Hungary requiring banks to compensate customers who took out foreign-exchange loans. Read more here: http://www.bne.eu/content/rbi-sees-hungarian-forex-law-costing€160m BANKER SE - FROM THE DAILIES 39. How Bulgaria’s Bank Run Affects Ukraine’s European Dream Bloomberg July 7, 2014 Joining the European Union was meant to give Bulgaria a fresh start. Try telling that to Anna Dimitrova. “Bulgaria didn’t gain from the EU as much as it could have, because it’s mismanaged by corrupt politicians,” said Dimitrova, a law student, in central Sofia. “Our politicians are not visionaries. Their horizon is too short.” Seven years after entering, Bulgaria has had three governments, remains the poorest of the bloc’s 28 nations and is repeatedly told by the EU to cut graft and corruption. In January, the EU said corruption “poses a significant challenge for the Bulgarian authorities.” The general weaknesses of the system were highlighted last week when two banks suffered runs. One was brought on by an “organized attack” of “criminal actions,” according to the central bank. The other was sparked by what media reports described as a feud between the majority shareholder and a large depositor, who is also a member of parliament. The two men exchanged death threats, according to Bulgaria’s chief prosecutor, Sotir Tsatsarov. Read more here: http://mobile.bloomberg.com/news/2014-07-03/how-bulgaria-sbank-run-affects-ukraine-s-european-dream.html 40. Turkish lenders suffer 11.5 percent profit loss in May on gov’t limitations, lower interest revenues Hurriyet Daily News July 8, 2014 Turkish lenders’ profits plunged 11.5 percent in May to 10.1 billion Turkish Liras as measures taken by the country’s economy managers as well as a retreat in interest incomes continued to cast worries on the sector, figures announced by the country’s banking watchdog have revealed. Squeezed by higher interest rates that curbed consumers’ loan appetite as well as limitations introduced on loan and installment payments, the sector suffered a steep profit decline of 44 percent in January. Moreover despite the drop in the momentum month by month, the downfall in profits continued in June, according to data announced by the Banking Regulation and Auditing Institution (BDDK).
Read more here: http://www.hurriyetdailynews.com/turkish-lenders-suffer-115percent-profit-loss-in-may-on-govt-limitations-lower-interestrevenues.aspx?pageID=238&nID=68790&NewsCatID=346 BANKER EA - FROM THE DAILIES 41. Loans in Azerbaijan drop in price Trend July 11, 2014 As of June 1, 2014, the Azerbaijani banks reduced interest rates on loans in local and foreign currencies compared to June 1, 2013, the statistical report of the Central Bank of Azerbaijan said. Read more here: http://www.bne.eu/content/loans-azerbaijan-drop-price
