The head of the Central Bank of Russia Elvira Nabiullina warned that by 2020 the number of Russian commercial banks will be reduced at least twice more.
This means the denationalization of the financial and banking sector, but the head of the regulator sees nothing bad in this. The only problem is the opposition of law enforcers, who are deprived of controlled credit institutions. And the tough conflict between the Bank of Russia and the shareholders of the Yugra Bank, which is being actively covered by the RF Ministry of Internal Affairs and the Prosecutor General’s Office, is coming to the fore. Most observers regard the release of a scandalous video about a homosexual relationship between Isak Frumin, head of the Institute of Education at the National Research University Higher School of Economics, and his subordinate Maxim Petrov as a sophisticated attack on Elvira Nabiullina. After all, her husband, Yaroslav Kuzminov, is the head of the Higher School of Economics! Formally, observers censure such actions of the “siloviki”, but secretly rub their hands together in anticipation of new waves of kompromat. Perhaps readers will be told about real estate and bank accounts in the West of high-ranking employees of the Central Bank of Russia…. Meanwhile, ordinary people are rushing around the market in an effort to save their deposits.
Thoughts Not Thoughts
1. The Central Bank rate is decreasing, the rates in banks are also decreasing, and the population is looking for an alternative to deposits. Because 5% at the same Sber is not serious at all, as nobody believes in real inflation at the level of even 4%, where the regulator is aiming.
And we got an interesting picture. Russians simply carry money to MFIs. Over the year, investments grew by almost a quarter. Citizens’ investments in MFOs amounted to 21.5 billion rubles, banks – only 17 billion rubles. For banks, the risks are too high, while the population is trying to place their money as efficiently as possible.
The difference is tangible, if in banks in the first half of the year the weighted average rate on bank deposits of individuals up to one year is 6.3%, in MFIs the rates start from 20-23%.
And for the same reason, money is being carried into mutual funds. Last month the net inflow of funds to open mutual funds amounted to 8.94 billion rubles. Retail funds have seen an inflow for 27 months in a row for a total of 78 billion rubles, says “Kommersant” with reference to data from the National League of Managers (NLU).
In mutual funds, yields are lower, but 10-15% can be counted on, although yields on bond funds are also declining.
What is the result? The result is an outflow of funds from deposits in banks and their transfer to riskier instruments. So far, this hardly threatens liquidity in the sector, but it also characterizes a decline in confidence in the entire banking system. Yes, MFIs and mutual funds do not guarantee safety, as is the case with bank deposits, but apparently the risks are not as significant compared to the returns. That is, even deposit insurance is not a significant reason to leave money in the bank. And if the economic situation worsens, it is very likely that the population will lose this money. We can say that people simply do not understand the risks, but clearly not all of them do.
In this situation, the Central Bank will have to solve a difficult dilemma. Since the fight for a stable financial sector is becoming more and more expensive, including from the reputational point of view.
2. There are several particularly interesting points in the interview of Central Bank Governor Elvira Nabiullina to Handelsblatt.
First, she stated that weak banks with a questionable business model will be withdrawn from the market within the next two years. In other words, we are in for a lot of surprises and unexpected skeletons falling out of bank vaults before 2020.
At the same time, the problems are allegedly the result of the 2007-2008 crisis or the business model, when the bank is used to lend to the owners’ business. Attention, question: Nabiullina has been the head of the Central Bank since June 2013, but why has the problem of business models surfaced in this form only recently? It turns out that earlier such practice suited everyone for some reason, and the instability in the system was not actively talked about. The situation worsened not after the global crisis, but after 2014, when Russian banks lost access to cheap Western loans, when they earned money simply on the difference in interest rates. Well, the recession in the economy has already finished off the troubled banks.
But they prefer to keep silent about it, because then it turns out that for many years the problem was known, as well as the risks, which simply no one took seriously.
Secondly, the head of the Central Bank touched upon the issue of competition with state-owned banks. In her opinion, there is no threat that only state-owned banks will remain on the market: “The high share of state-owned banks was formed historically. And who prevents privatization rather than actual nationalization in the sector? Yes, we have already heard about the sale of bailed-out banks, but to whom should they be sold? Sberbank and VTB? It seems that the regulator and interested groups of persons are doing everything to not only keep their hands on the pulse of the banking sector, but also to control this pulse. Because it is easier to make money that way, and too many people are connected to the trough.
That said, we have no doubt that the Central Bank will indeed achieve stability in the sector, achieve its goals and things will not be so bad. But the price seems high. Already now more than half of the top 10 banks are state and quasi-state banks. Already, large state-capitalized banks account for more than 60% of the market in terms of lending and open accounts. And consolidation will continue, so that in two years, a share of 65-70% is more than realistic.
So what do we have with competition? It is not for nothing that private bankers are worried about their fate.
At the same time, Nabiullina allowed the possibility of privatization of Sberbank and VTB only after consolidation of the banking sector, as well as after confidence in private banks is restored. Let me ask you, what does the Central Bank have to do with privatization? We have a Cabinet of Ministers, which determines the list of assets for sale, and the Bank of Russia is not yet part of the government structure. Either someone is playing at being the creator of fate, or this clause can be interpreted as an indication that the matter will not be limited to simply increasing the state’s share in the sector.
3. The conflict of the Central Bank vs. Khotin + law enforcers has heated up to no-nonsense scales.
First, Alexey Khotin, the owner of Yugra Bank, said that he was ready to compensate the losses of the bank’s depositors from his own funds if the Central Bank returns the license.
Secondly, the Ministry of Internal Affairs refused to initiate a criminal case on the application of Central Bank Deputy Chairman Vasily Pozdyshev against the top management of Yugra Bank.
Khotin’s boldness can only be explained by the fact that he is actively supported by employees of the Prosecutor General’s Office and the Interior Ministry, who have long had a grudge against the Central Bank. According to rumors, Nabiullina was asked several times not to touch certain banks that were important to the leadership of law enforcement agencies, but she almost immediately covered them, sending Vasily Pozdyshev there “for a showdown”. And now the law enforcers have been joined by representatives of business and big politics, who are concerned about the excessive strengthening of the Central Bank head’s position and Pozdyshev’s increased media activity. As we expected, the leaked videos of the homosexual scandal at the Higher School of Economics and other dirt on the Central Bank are just the beginning of a big and serious war.
Banksta
There is a plus for the banking system in the conflict between the siloviki, led by Yugra owner Alexei Khotin, and the Central Bank. It is a reduction of risks for corruption in the Central Bank (the cost of bribes will obviously increase and the transfer process itself will become more complicated). Maybe the fat assets of the Bank of Russia employees themselves will be revealed – Vassy Pozdyshev’s Ferrari, Serega Shvetsov’s million-dollar watch or Anna Orlenko’s megadacha in France.
But Khotin’s methods and approaches are strikingly direct. This is blatant bullying and manipulation of Ugra’s excesses (the license will not be returned 100% and Khotin knows it), and posting a homosexual video about the employees of Vyshka, where Elvira Nabiullina’s husband rules, looks too dirty.
Boiler room
Marey’s deflated
Amid scandals in the banking market, Alfa’s managing director has left the company. A source in the bank says that Alexei Marey has gone bronze and no longer suits shareholders in this position. Alfa started to fuck up competition in the market with other retail banks. Among the pluses – strict risk management, Alfa strictly looked at what they gave money for, and here it was difficult to agree on a knowingly irrecoverable loan, and this is what makes the bank very different from its peers. The bank survived, but at the same time it completely lost the competition in such a segment as mortgage, issuing loans for housing within the framework of partnership with Delta Credit on unfavorable terms. At the same time, it was the mortgage that became the driver of the economy in recent years.
Complaints about customer service have become more frequent, the bank has begun to eat away the bank’s share of the lending market, and there have been no flashy breakthrough products for a long time. As our source said, a lot of money is invested in music festivals and rap battles, but there is no use. Nobody in the bank needs hype for the sake of hype, especially Fridman and Khan, who like to count money. So Marey will be followed by other people from his team, Alfa is waiting for renewal. Marey is also blamed for the fact that the bank with a lot of money adhered to an extremely conservative policy and did not acquire smaller competitors.