OREANDA-NEWS. Fitch Ratings has published the latest edition of the 'Russian Banks Datawatch', a monthly publication of spreadsheets with key data from Russian banks' statutory accounts.

The issue (available at www. fitchratings. com or by clicking the link above) includes:

- Balance sheet numbers as of 1 July 2016, as well as changes during June 2016 and since 1 January 2016

- Profit and loss statements for 1H16

- Charts illustrating balance sheet changes in 1H16 for the main state-related, privately owned, foreign-owned and retail banks

- Special report on the main changes to the figures and trends in the Russian banking system in 1H16 and 2Q16

Fitch notes the following key developments in June 2016:

Sector corporate loans nominally decreased by RUB168bn (-0.5%), but grew by RUB202bn (0.6%) after adjusting for 3% rouble appreciation against the US dollar. The biggest increase was reported by VTB (RUB142bn, 3%) and moderate growth was seen at Alfa-Bank (RUB26bn, 2%), Promsvyazbank (RUB47bn, 6% partially due to Pervobank consolidation) and AB Rossiya (RUB20bn, 7%), while notable decreases were seen at Gazprombank (RUB48bn, -2%), Unicreditbank (RUB21bn, -3%) and Novikombank (RUB10bn, -7%).

Retail loans grew a modest RUB11bn (0.1%), due to RUB43bn (0.6%) growth in state banks and a RUB32bn (-0.8%) contraction in others. Among specialised retail banks only Tinkoff grew (by 1.5%), Russian Standard was stable, while others (Home Credit, Orient Express, OTP and Rencredit) deleveraged by 0.5%-1%.

Customer funding (excluding that from government entities) nominally decreased by RUB0.5trn (-1%), but remained almost unchanged if adjusted for exchange rate effects, as a RUB0.3trn inflow of retail deposits was offset by a similar outflow from corporate accounts. Corporate accounts (including Eurobonds) contracted mainly in Sberbank (RUB169bn, -3%), Gazprombank (RUB134bn, -4%), Unicredit (RUB44bn, - 6%) and Rosbank (RUB21bn, -8%), while considerable inflows were reported by Rusag (RUB43bn, 4%) and Alfa-Bank (RUB25bn, 3%). Large increases of customer funds at Promsvyaz and B&N Bank were mostly technical due to the consolidation of Prevobank and Kedr, respectively. Retail deposit inflows were even across the sector.

State funding nominally decreased by RUB324bn (-7%), or by RUB297bn (-6%) after adjusting for exchange rate moves, mainly reflecting further repayment of the Central Bank of Russia (CBR) funding by RUB225bn (of which RUB135bn was in roubles and RUB90bn in FX). Banks also repaid RUB83bn to regional and federal budgets and RUB52bn to other government entities, but borrowed RUB63bn from the Finance Ministry (Minfin). The largest RUB154bn repayment of CBR funds (mainly of FX repo) was made by Otkritie, as a result of which the bank's CBR FX repo liability decreased to USD12bn (the majority of the sector's total USD13bn CBR FX repo utilisation).

The largest monthly increases in borrowings from Minfin were by VTB (RUB74bn) and Gazprombank (RUB25bn).

The continued repayment of CBR rouble funding reflects the significant inflow of liquidity due to significant rouble issue (RUB0.8trn in 1H16) by the CBR to finance the state budget deficit. As a result, total rouble issuance in 2016 could exceed RUB2trn, resulting in the banking sector having a liquidity surplus. The CBR is concerned about banks accumulating excessive liquidity and has therefore already made three increases of reserve requirements (one effective from March, the second from July and the third from August), which could result in RUB0.6trn-0.8trn of extra reserves placed by banks. The CBR is also considering sterilisation options such as the issuance of bonds to banks.

The sector reported a RUB95bn net profit in June (15% annualised ROAE), of which Sberbank earned RUB45bn (21% ROAE) and Gazprombank RUB16bn (46% ROAE, partially driven by provision recovery). Notable losses were shown by the rescued Express-Volga (RUB4.4bn, equal to end-May equity but partially compensated by positive AFS securities revaluation), Rost-bank (RUB4bn, equity was already negative) and Novikombank (RUB2bn, 11%).

Of specialised retail banks, Home Credit, Tinkoff, OTP and Rencredit reported monthly profits equal to 1%-4% of equity, while Russian Standard and Orient Express still had negative results of 1%-3% of equity.

The sampled banks' average capital ratios were unchanged, as modest lending growth and dividend payments (including RUB45bn by Sberbank, RUB33bn by VTB) were offset by monthly profits and some deflation of FX-denominated risk-weighted assets due to rouble appreciation. The average core tier 1 (N1.1) and tier 1 (N1.2) ratios were, respectively, 8.3% and 8.6% (required minimums of 4.5% and 6%), and the total capital ratio (N1.0) was 12.5% (minimum 8%).

We estimate that current capital buffers (excluding potential future profits) of 39 of the sampled banks (excluding already failed and rescued banks, and those not reporting capital ratios) are sufficient to absorb potential loan losses equal to less than 5% of loans, and five could absorb less than 1%. The latter are VTB24, Promsvyazbank, Post Bank, UBRIR and Moscow Industrial Bank. We also see risks in some banking groups operating with very low or even negative equity on an aggregated basis (B&N Bank and SMP Bank groups), mainly due to them having rescued failed banks with weak capital positions.