Sberbank unveils 2019 results of banking operations
- In 2019 all banking markets experience dramatic slowdown
- In 10M19 savings deposits held by public organizations up RUB2.5 trln
- Depositors taking time to re-deposit in rubles: convergence of interest rates on products denominated in foreign currencies and rubles also stimulates savings in foreign currencies that started climbing again
- Russia seems close to banking market saturation point
- Bank failure figure reaches five-year low: 6% of banks get their licenses revoked or sanitized by CB
- Due to decelerated bank failure DIA collects more contributions than it pays in compensations to clients for the first time since 2012
December 27, 2019, Moscow — Sberbank has summed up the 2019 banking results and key trends under SberData, Sberbank’s big data analytics and processing initiative.
All banking markets experienced a dramatic slowdown, which will be thwarting further recovery of the banking system heavily.
- Growth rates across the key banking markets decelerated to one digit figures, ranging between 3% and 5%, which is triggering much heavier competition and pushing the attractiveness of the banking business down.
- In fact, the banking system is left with few attractive and growing business segments, which heavily predetermined banks’ focus on individual lending. The latter decelerated to 18% from 22% staying the last profitable and growing sector of the banking business.
In 2019, Russia has had the toughest bank regulation in the world.
- In terms of regulator activities, the year 2019 saw Bank of Russia further tightening its grip on banks. Many of the new provisions were introduced as macroprudential regulation. The CBR has introduced a number of measures already; as of today Russia limits:
- lending in foreign currencies, including lending to exporters
- all types of consumer lending
- mortgage loans with down payments under 20%
More limits in the pipeline have been announced.
- This leadership is not necessarily a good thing. For example, in Russia mortgages with down payments of up to 20% come with a risk factor of 200%. No country in the world has ever introduced a mortgage risk factor overshooting 100%.
Things are complicated with foreign currency transactions, too, as the foreign currency lending decrease significantly outran the reduction of foreign currency predominance in savings accounts.
- Tighter regulations by the Central Bank – such as increased currency loan risk ratio coupled with higher contributions to Deposit Insurance Agency of Russia and contributions to the legal reserves on currency funds that were increased to 8% – significantly reduced the competitiveness of the banks on the foreign currency lending market. Enterprises simply preferred to borrow money abroad under better terms.
- Meanwhile, clients are taking their time to re-deposit their funds in rubles: convergence of interest rates on products denominated in foreign currencies and rubles also stimulate savings in foreign currencies that started climbing again.
- At the same time, banks can deposit their foreign currency surplus mostly in foreign banks under minimum interest rates. Nonetheless, banks are finding it harder to earn on foreign currency transactions; as for depositors, it becomes more and more difficult to count on high income from foreign currency savings accounts.
Regulators and media focused on consumer lending when discussing a possible market bubble.
- Russia seems to be approaching market saturation, but it’s not the same as growing risks of market bubble explosion. It will most likely have non-destructive consequences, especially taking into account low unemployment risks amid the demographic situation.
Bank failure figures reached their five-year low, but were still higher than in 2013.
- In 2019, as much as 6% of banks got their licenses revoked or were sanitized by the Central Bank. This is a five-year low: the share of troubled organizations stood at about 10% in 2014–2018 which sometimes undermined clients’ trust in the industry in general.
- It is too early to talk about the end of the banking crisis as small banks are still experiencing some issues. Moreover, for many of them it will become more difficult to perform under the new conditions.
Contributions to Deposit Insurance Agency exceeded payouts; DIA started paying back its debts to the CB.
- Thanks to decelerated bank failure figures, Deposit Insurance Agency collected more contributions and paid less compensations to clients for the first time since 2012 and was able to pay back over RUB 200 bln of the money it had borrowed to make payments to depositors; the RUB 629 bln remainder is scheduled to be paid back by 2023.
- The appraised value of the banks’ assets that are being liquidated by DIA with licenses that were revoked since 2014 is RUB 1.2 trln. DIA can repay the whole debt with these funds, but long-term liquidation procedures are preventing it from doing this. Nevertheless, there are preconditions to decrease contributions to DIA.
Cashless turnover in 4Q19 will exceed 50% of citizens’ expenses.
- One of the positive trends in 2019 was the continuing growth of cashless payments share, which will exceed 50% in 4Q19, according to our expectations.
- In 9M19, according to the Central Bank, 48.6% of expense transactions, i.e. purchases of goods and services, were non-cash. According to our estimates, the proportion of cashless turnover exceeded 50% in 26 regions in 3Q19, up from only four regions a year ago.
- Early signs are emerging that cashless payments adoption is slowing down. Compared to 3Q18, its share increased by 4.8 pp, a low of almost three years, according to our data.
- At the same time, more than one fourth of enterprises (27%) in Russia have no terminals and still accept only cash payments, but this is only 9% of the citizens’ total spending, according to SberData.
Cybersecurity is one of the major priorities for banks, with flourishing social engineering and fake surveys among the key trends. This caused a growth of fraudsters’ interest in personal data of bank clients.