Bank groups in the Russian banking sector. Liquidity and profitability of Russian banks.

RusRating / GlobalRating evaluates the liquidity of Russian banks and their effectiveness in 2007.

RusRating analyses the key aspects of the banking sector, i.e. liquidity and profitability in 2007 in its report “Bank groups in the Russian banking sector. Liquidity and profitability of Russian banks”.

RusRating considers it is particularly important to determine the dynamics of these indicators in light of the global liquidity crisis that many expected to have affected the Russian banking sector.

A detailed analysis of on-call liabilities from different bank groups shows a stability in these indicators for the majority of banks in 2005-2007. In order to determine the liquidity of Russian banks, the dynamics of volume and levels of liquidity were analyzed for different bank groups.

Changes in levels of liquid assets for different bank groups

Source: banks' financial statements; evaluation: RusRating

Overall liquidity levels have been stable since early 2006. Specific asset categories (such as the loan portfolio) also did not decline during this period which shows that the banks maintained their pre-crisis credit stability in 2007.

RusRating used ROA (return on assets) indicator changes to determine the effectiveness of assets and capital in the different bank groups.

Changes in ROA indicators for different bank groups

Net quarter profits from early 2005 to October 2007 and average net assets were used in the calculations, based on RusRating's methodology.
Source: Central Bank of Russia, analysis: RusRating

Despite differences in asset size, the structure of profits and liabilities, assets and reserves are comparable for many banks in different groups. A banks' effectiveness is determined not by its asset size or regional location, but by the focus of its operations. Leaders in retail loans have the highest ROA indicators.

Key points of the RusRating review:
• There are no crises in the Russian banking sector, in part due to previously accumulated reserves
• There are no sharp changes in liquidity indicators or a sharp growth in the loan portfolios, though large regional banks have lower liquidity levels
• The highest growing source of funds is foreign resources, whose share is also growing on the liabilities side
• Profits are growing primarily due to increased profits from retail loans and fees
• The leading retail banks have the highest market return on assets and equity indicators
• The possible deficit of foreign funding will stimulate the intensive development of domestic funding sources

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