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 publication includes:

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

- Charts illustrating balance sheet changes in 7M16 for the main state-related, privately owned, foreign-owned and retail banks

Fitch notes the following key developments in July 2016:

Sector corporate loans nominally increased by RUB665bn (1.8%), but after adjusting for 4% rouble depreciation against the US dollar grew by a smaller RUB103bn (0.3%). The growth was mainly in state-related banks, including Sberbank (RUB58bn, 0.5%), Rusag (RUB32bn, 2.2%) and Gazprombank (RUB20bn, 0.6%). Moderate growth was also reported by Otkritie (RUB33bn, 1.6%) and Credit Bank of Moscow (RUB43bn, 5.4%), while notable decreases were reported at Promsvyazbank (RUB36bn, -4.6%) and B&N Bank (RUB21bn, -16.9%).

Retail loans nominally grew by RUB52bn (0.5%), or by a lower RUB40bn after adjusting for currency moves. The adjusted growth was mainly in Sberbank (RUB15bn, 0.4%) and VTB group (RUB24bn, 1.3%). Among specialised retail banks only Tinkoff and Rencredit saw loan growth, of 2.3% and 1.3% respectively, and Orient Express was stable, while others (Home Credit, Russian Standard and OTP) deleveraged by 1%-3%.

Customer funding (excluding that from government entities) nominally increased by RUB229bn (0.5%), but decreased by RUB558bn after adjusting for exchange rate effects, which included a RUB752bn (-2.8%) contraction of corporate accounts and RUB194bn (0.9%) growth of retail funding. Fitch believes the outflow of corporate funding probably resulted from a seasonal spike in dividend payments by Russian corporates (e. g. Rosneft paid RUB124bn in July and Gazprom announced RUB187bn in June) and tax payments. Corporate accounts contracted mainly in Sberbank (RUB240bn, -3.4%), Gazprombank (RUB301bn, -10%), Rusag (RUB99bn, -8.2%) and Credit Bank of Moscow (RUB89bn, -8.1%). Retail funding growth was even across the sector.

State funding nominally increased by RUB50bn (1.1%), or by RUB14bn (0.3%) after adjusting for exchange rate moves. The latter figure consists of RUB19bn and RUB41bn of repayments to, respectively, Central Bank of Russia (CBR) and Minfin, borrowings of RUB57bn from regional and federal budgets and a further RUB17bn in loans from other government entities. Although the sector's CBR funding remained almost stable, there were some material reshufflings, as Otkrytie repaid RUB103bn (of which RUB48bn was in FX, resulting in a reduction of its outstanding usage of CBR FX repo to USD11bn at 1 August), while Gazprombank borrowed RUB166bn, most likely to compensate a large corporate account outflow.

We expect the repayment of CBR funding to return in 2H16 after a temporary halt in July driven by a large and seasonal outflow of corporate accounts. The CBR will likely continue rouble issuance in exchange for foreign currency in government reserve funds, as these are used to finance the budget deficit (CBR issued RUB0.8trn in 1H16 and the total issuance in 2016 could exceed RUB2trn). The resulting shift to liquidity surplus in the banking sector creates inflation risks, which forced the CBR to make three increases in reserve requirements (one effective from March, the second from July and the third from August) sufficient to absorb about RUB0.6trn-RUB0.8trn of liquidity from the banking sector. The CBR also started short-term deposit auctions in August to absorb excess liquidity and is considering other sterilisation options such as the issuance of bonds to banks.

The sector reported a RUB62bn net profit in July (9.7% annualised ROAE), of which Sberbank earned RUB46bn (21%) and Alfa-bank RUB14bn (78%, largely due to FX revaluation gains). A significant loss was shown by VTB's BM-Bank (RUB21bn, -37% of end-June equity), mainly due to a spike in loan impairment charges.

Among specialised retail banks, Tinkoff, OTP and Home Credit reported monthly profits equal to 1%-3% of end-June equity, Rencredit was slightly above break-even, while Russian Standard and Orient Express had losses equal to about 1% of equity.

The sampled banks' average capital ratios decreased by 10bps-20bps due to inflation of FX-denominated risk-weighted assets stemming from rouble depreciation. The average core tier 1 (N1.1) and tier 1 (N1.2) ratios were, respectively, 8.1% and 8.4% (required minimums of 4.5% and 6%), and the total capital ratio (N1.0) was 12.4% (minimum 8%).

We estimate that current capital buffers (excluding potential future profits) of 41 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 five banks are VTB24, IBA-Moscow, UBRIR, Moscow Industrial Bank and Asian-Pacific.