Consolidation as a factor of creating a new landscape in the Russian banking system

Transcription

1 Consolidation as a factor of creating a new landscape in the Russian banking system Konstantin M. Vaysman CFO, Bank URALSIB 15 th Adam Smith Conference Russian Banking Forum 1-4 December 2008, London

2 Content Russian banking system in the context of crisis Fundamental factors of consolidation Banks Valuation Banking M&A in Russia: a reasonable strategy? The role of Government in encouraging consolidation Conclusions 2

3 Content Russian banking system in the context of crisis Impact of the financial crisis on the banking system in Russia Measures introduced by the government and Central Bank Consolidation of the banking system: an anti-crisis measure or a strategic move? Fundamental factors of consolidation Banks Valuation Banking M&A in Russia: a reasonable strategy? The role of Government in encouraging consolidation Conclusions 3

4 Individual deposits outflow 6,9% 5,16 5,13 5,22 5,31 5,48 5,65 5,77 5,85 5,98 5,89 5,54 * 1,9% 1,7% 3,1% 3,2% 2,1% 1,4% 2,2% -0,6% -1,5% -6,0% средства Individual Deposits, населения, Rbl trn трлн руб Monthly темпы прироста,% growth rate, % * Forecasts: Deposit Insurance Agency (State Corporation) Source: CBR 4

5 Banking system growth slowdown 14,0 14,1 CMGR* 3.6% 14,5 15,6 15,9 17,0 17,2 52% CMGR 2.7% 17,5 18,0 18,2 18,3 18,9 20,1 20,1 CMGR 2.2% 20,7 21,3 21,7 22,4 23,1 23,3 24,0 24,6 44% 44% 43% 36% 33% Assets, активы, Rbl трлн trn руб Growth темпы rate, прироста,% % yoy yoy *CМGR - compound month growth rate Source: CBR 5

6 Deteriorating asset quality 5% гг гг. 4% 3.2% 3.5% 3.3% 3.7% 3% 2% 1% 1.5% 1.3% 0.9% 1.0% 1.2% 1.9% 1.7% 0% Overdue loans Просрочка ЮЛ -corporates Overdue loans -individuals Просрочка ФЛ Conservative scenario Optimistic scenario Source: CBR 6

7 Measures introduced by the government to stabilize the banking system Liquidity support Resuming lending operations Unsecured loans from CBR for up to 6 months Balances of Federal budget funds Lower obligatory reserves requirements Balances of the State Corporation Fund for reforming Housing and Utilities Subordinated loans (10 years, at 8% p.a.) Before end CBR can sign agreements with banks to cover losses from the Interbank lending Capital increase of the Agency for Housing Mortgage Lending to refinance mortgage loans ~ 850 RUB bln ~ 650 RUB bln ~ 370 RUB bln ~ 157 RUB bln Sberbank 500 RUB bln VTB 200 RUB bln Rosselkhoz 25 RUB bln Other banks 225 RUB bln 60 RUB bln Refinancing international debts Stock market support Reorganization of problem banks VEB s* loans to corporates and banks covered by Gov t funding VEB s* support of the domestic stock market funded by the National Wealth Fund Capital increase of VEB* Capital increase of Deposit Insurance Agency Targeted/Direct state support US$ 50 bln ~ 175 RUB bln (~90 RUB bln invested) 75 RUB bln 200 RUB bln $US 0,5 bln. to Gazenergoprombank for the purchase of Sobinbank $US 2,5 bln to VEB to buy Svyazbank and 2 bln to support Globex bank *Vnesheconombank Total rescue funds: ~3 487 RUB bln and $US ~55 bln 7

8 Content Russian banking system in the context of crisis Fundamental factors of consolidation Growth potential of the Russian banking system Are there fundamental factors for lowering the fragmentation? Banks Valuation Banking M&A in Russia: a reasonable strategy? The role of Government in encouraging consolidation Conclusions 8

9 Consolidation of the banking system Consolidation of the banking system Mature and better developed banking system Easier management of the financial system and a more stable economy Opportunities for effective M&As Fewer banks allow a more manageable banking system Better transparency More trust between banks More trust between banks and customers for international players to make entrance to Russia or to strengthen existing presence for major Russian banks to strengthen current positions Lets look at some key characteristics of Russian Banking in international comparison: Potential & profitability, concentration, role of state banks, regional dispersion 9

10 Overview on key characteristics of Russian banking market 1. Potential & profitability Banking in Russia still with very low penetration and therefore high growth potential while being highly attractive in terms of margins and profitability 2. Concentration The core of Russian banking, 80% of total assets, is constituted by approx. 50 banks, while in most international markets half the number of banks is sufficient. In addition with some 1000 registered banks no other major country has such a vast number of small banks. 3. State ownership Compared with other countries (exception Germany) Russia has a a particularly high share of state banks (a 47 % share of statebanks in total assets) and further increase is expected 4. Regional business 15 Tier 1 & 2 regions constitute 66% (Retail Banking) to 80% (Corporate Banking) of total banking assets 10

11 Banking in Russia: high potential, attractive profitability Luxembourg Ireland Denmark UK Netherlands Belgium Cyprus France Austria Sweden Malta Germany Spain Finland Italy Portugal Greece Slovenia Estonia Czech R. Latvia Hungary Slovakia Lithuania Poland Bulgaria Russia Russia: large banking market with yet high potential EU 27: Russian banking assets per capita remain low, indicating large growth potential 2, ,500 Bank assets/capita ( 000 EUR, 2006) Total banking assets (EUR B) 1,169 1, ,159 2,175 1, , ,592 2, , ROA 3,0% 2,5% 2,0% 1,5% 1,0% Slovakia 0,5% 0,0% 0 10 and attractive profitability Russia Poland (1) Hungary Czech R. Belgium R 2 =67% GDP/capita ( 000 EUR) (2) Source: ECB; EIU (1) ROA on Russia is of year end 2007 (2) Nominal GDP 11

12 Very high fragmentation in Russian market in international comparison Russia Europe USA CEE Emerging 100% 80% 60% 40% 20% 0% % 7 % 6 % 6 % 6 % 8 % 8 % 7 % 11 % 11 % 12 % 20 % 21 % 7 % 21 % 19 % 21 % 22 % 27 % % % > Sberbank 100% 100% 32 % 46 % 19 % 44 % 35 % 24 % D 1 F 2 100% 100% 5 % 3 % 6 % 11 % 58 % 67 % 31 % 19 % NL UK 100% 36 % 13 % 30 % 21 % I 100% 48 % 18 % 23 % 11 % USA 100% 21 % 32 % 33 % 14 % PL 100% 31 % 37 % 22 % 10 % UA 100% 20 % 27 % 39 % 14 % Brazil 100% 25 % 36 % 24 % 16 % India > Largest Source: Central Bank Data 1,2. For Germany and France share of 6-20 and >21 are represented together 12

13 Dominant role of state banks vs international comparison Russia Europe USA CEE Emerging 100% 80% 60% 40% 100% 100% 100% 8% 7% 6% 11% 10% 10% 7% 7% 7% 17% 16% 16% 13% 14% 15% Other Other top200 Large Regional Large Private Foreign 100% 52 % 11 % 100% 100% 98 % 96 % 101% 100% 100% 93 % 92 % 93 % 100% 11 % 71 % 100% 57 % 100% 45 % 20 % 100% 70 % Other 20% 0% 45% 46% 47% State owned 37 % D 2 % F 1 % 4 % NL 9 % UK 1 8 % I 7 % USA 18 % PL 35 % 8 % UA 35 % Brazil 8 % 22 % India Foreign State Source: Central Bank Data 1. The UK used to have no state owned banks...until recently 13

14 80% of Corporate and 66% of Retail Banking business concentrated in 15 Tier 1 & 2 regions Corporate Banking: ~ 80% of business done in 15 Tier 1 & 2 regions Retail Banking: ~2/3 of business done in 15 Tier 1 & 2 regions %, market share in corporate banking %, cumulative %, market share in retail banking %, cumulative Tier 1 Tier 2 Tier 3 Tier 1 Tier 2 Tier 3 15 regions 67 regions 15 regions 67 regions Tier 1 regions: Moscow, S.-Petersburg, Moscow region Tier 2 regions: Sverdlovsk, Tatarstan, Tyumen, Samara, Krasnodar, N. Novgorod, Belgorod, Bashkortostan, Rostov, Perm, Chelyabinsk, Novosibirsk Tier 1 regions: Moscow, S.-Petersburg, Moscow region Tier 2 regions: Tyumen, Sverdlovsk, Krasnodar, Samara, Tatarstan, Chelyabinsk, N. Novgorod, Krasnoyarsk, Novosibirsk, Rostov, S.-Petersburg Region, Perm Source: BCG market model; BCG analysis 14

15 Content Russian banking system in the context of crisis Fundamental factors of consolidation Banks Valuation The estimation of Russian banks capitalization: what has the crisis changed? Economically justified value of the banks Banking M&A in Russia: a reasonable strategy? The role of Government in encouraging consolidation Conclusions 15

16 In CEE "overheated" transaction multiples started to come down during 2007 Price-to-book equity CEE for selected banking transactions Ø IMB (2.7) 2005 UPI Banka DD (7.2) Banca Comerciala Romana (5.9) Novosadska Banka (5.3) JSPPB Aval (4.1) Aval (3.2) Eurobank (2.6) Monchebank (2.4) Continental Banka (1.4) Jubanka AD (1.4) KMB-Bank (3.6) UkrSibBank (3.4) Banca Romana Pentru Jubanka AD (1.3) Dezvoltare (1.3) Podgoricka Banka Ad Podgorica (1.2) BRE Bank Hipoteczny SA (1.0) Ø3.3 Banca Comerciala Robank (1.9) Nova Banka DD (2.5) Slovenska Sporitelna (1.9) Ø Indexbank (7.2) Meridian Bank AD (6.7) Panonska Banka AD (5.3) IMB (3.3) LT Gospodarska Banka DD (1.6) DZI Bank (7.3) ebanka AS (5,3) HVB Splitska Banka DD (5.0) NRB-Ukraina (4.8) Megabank (4.1) Impexbank (2.9) Ø EIbank (4.8) Ukrsotsbank (4.7) IMB (2.9) BPH-200 (2.5) Ukrinbank (1.19) Factorial bank (6.2) A-Banka (6.1) TAS-Kommerzbank (4.9) Credit Ural (1.5) MDM-bank (4) IMB (3.9) NRB-bank (3.8) Absolut-bank (3.8) Rosbank (3.16) Ø2.9 1H 2008 Pravex (6.6) BACB (5.1) Zapsibcombank Russkiy bank razvitiya (less than 1) Expobank (4) Uniastrum (3.1) Bank Vozrozhdenie (2.96) Bank VTB NW (2.4) Sobinbank (2.4) AvtoZAZ (1.5) Bawag CR (1.2) Istrobanka (3.4) Poland Romania Slovakia Slovenia Russia Czech Republic Bulgaria Croatia Republic of Montenegro Serbia Ukraine Bosnia and Herzegovina Note: Equity based on accounting figures; Sample: all transactions listed in datastream in CEE (without turkey); no figures for Banca Italo Albanese Sh A (AL), Mria Bank (UA), Niska Banka AD (CS), Delta Bank (CS), Eksimbanka (CS) Source: T.F. Datastream; BCG analysis 16

17 In October valuation levels in Russia down to partly below market-to-book of F P/E* Sberbank 20,2 18,2 5,5 VTB н/a 46,4 10,0 Bank of Moscow 12,4 20,0 14,0 Rosbank 35,9 33,4 16,7 Bank Uralsib 30,6 86,1 3,5 Ursa Bank 21,4 23,3 3,5 Bank Saint Petersburg н/a 15,8 2,6 Vozrozhdenie Bank 23,4 17,5 2,4 P/BV Sberbank 5,4 3,5 0,8 VTB н/a 2,4 0,8 Bank of Moscow 2,5 4,2 1,5 Rosbank 5,4 3,8 1,6 Bank Uralsib 4,5 2,8 0,4 Ursa Bank 6,9 3,0 0,6 Bank Saint Petersburg н/a 2,6 0,5 Vozrozhdenie Bank 5,6 3,4 0,5 P/A Sberbank 0,52 0,47 0,11 VTB н/a 0,56 0,13 Bank of Moscow 0,20 0,36 0,13 Rosbank 0,45 0,33 0,14 Bank Uralsib 0,60 0,30 0,04 Ursa Bank 0,57 0,35 0,07 Bank Saint Petersburg н/a 0,29 0,05 Vozrozhdenie Bank 0,42 0,35 0, F ROAA* Sberbank 2,9% 2,9% 2,4% VTB 2,5% 1,7% 1,5% Bank of Moscow 2,0% 2,1% 1,0% Rosbank 1,5% 1,3% 1,1% Bank Uralsib 2,1% 0,4% 1,2% Ursa Bank 5,1% 1,9% 1,9% Bank Saint Petersburg 2,4% 2,7% 2,2% Vozrozhdenie Bank 2,2% 2,4% 2,5% ROAE* Sberbank 30,6% 22,5% 17,8% VTB 15,4% 7,0% 7,8% Bank of Moscow 23,6% 25,3% 12,4% Rosbank 15,9% 13,8% 11,4% Bank Uralsib 14,9% 3,3% 11,4% Ursa Bank 56,9% 17,5% 16,9% Bank Saint Petersburg 26,1% 30,2% 22,1% Vozrozhdenie Bank 32,1% 25,0% 23,3% Which valuation levels are fundamentally supported? * In valuation of the profit as at YE2008, a conservative scenario is used (the full valuation is transferred to profit), the multipliers are calculated as of date, performance indicators are calculated average-for-the-period Source: CBR, RTS, MICEX 17

18 Which valuation levels are fundamentally supported? Crises scenario 1: Crises shorter (3 years) ROE stays positive Crises 3 yrs Recovery Long term Market-to-book: 2,1 ROE Growth 10,0% 4,5% Crises scenario 2: Crises longer (5 years) substantial losses/ negative ROE Crises 5 yrs Recovery Long term Market-to-book: ROE 10,0% Growth 4,5% 18

19 Transaction needs to compensate for bad loan portfolio of target particularly relevant in ,1 x equity Russian short term interest rate in % 1 st shock subprime 2nd shock Liquidity 3 rd shock: Bad debts 0,7 x equity 1,0 x equity "Buffer" needed for NPLs recapitalization 20 15? restructuring costs 10 5 Assumed transaction price Crises Crises scenario 1 scenario 2 0 MIBOR - 1 day 2009 MOSPRIME 1M 19

20 Content Russian banking system in the crisis context Fundamental factors of consolidation Banks Valuation Banking M&A in Russia: a reasonable strategy? Examples of successful M&A strategies of western banks What are the benefits of M&A for Russian banks? The role of government in encouraging consolidation Conclusions 20

21 Four strategies of western banks in Russia Self-sustaining organic growth Acquisition of a local bank with a developed network. Offering own products through the acquired network Increasing of ownership in a major bank, supporting the bank as a shareholder Complex strategy including acquisitions of smaller mono-product banks and buying a stake in a major bank) 21

22 Western banks: М&A means winning positions 1996 A rep office in Russia opened First 2 branches offering retail services 1999 in Moscow 2001 A branch in St.Petersburg opened 2006 Acquisition of 100% shares of Impeksbank 187 sales points (ranked #8 by RBC) Assets - 52,5 RUB bln (ranked #22 by RBC) 2007 Result: Completion of legal merger with Impeksbank 245 sales points (ranked #11 by RBC) Assets 460,3 RUB bln (ranked #7 by RBC) 1991 Establishing of MMB (the first bank with foreign participation) 2001 Merger with Bank Austria Creditanstalt 2005 Total assets 52,5 RUB bln Consolidation of the controlling stake of MMB 2006 Consolidation of 90% shares of MMB 2007 Consolidation of 100% of MMB 2007 Name change to Unicredit Result: 75 sales points (ranked #50 by RBC) Assets 413,2 RUB bln (ranked #10 by RBC) 1993 Starting in Russia 2003 Starting of customer banking 2004 Opening LLC Rusfinance» 2005 Acquisition of Promeksbank (Samara) 35 regions Assets 2.8 RUB bln Acquisition of Delta Credit bank for US$ mln Assets 4.3 RUB bln 2006 Acquisition of STB bank (Moscow) assets 2.6 RUB bln 2006 Acquisition of Rosbank s 20% 494 sales points Assets RUB bln 2008 Total: Acquisition of Rosbank s 30% - total price US$ 2.33 bln BSGV, incl. subsidiaries 80 sales point Assets RUB bln Rosbank (BSGV share - 57,5%) 592 sales points (ranked #3 by RBC) Assets RUB bln (ranked #8 by RBC) 22

23 URALSIB CASE Investment banking «NIKoil» - Corporate business management technologies - Corporate customers - Acquired companies management experience - Capital Banking business AVTOBANK: Sales technologies, Moscow and regional retail sales network (as of , assets RUB bln., N 34) Ural-Siberian Bank: Strong regional retail network (as of , assets = RUB bln., N 10) Bryansky Narodny bank (as , assets = 2.6 RUB bln., N 260) Kuzbassugolbank (as of , assets = 4.5 RUB bln., N 170) YUG Bank (as of , assets = 11.7 RUB bln., N 20) FC URALSIB Business growth and diversification Development of innovative financial technologies, preparation for M&As Transition to FC business model Growing up to national scale Organic growth, local acquisitions 23

24 Content Russian banking system in the context of crisis Fundamental factors of consolidation Banks Valuation Banking M&A in Russia: a reasonable strategy? The role of Government in encouraging consolidation What is missing in the anti-crisis strategy? Current status of the consolidation processes A view on the future Conclusions 24

25 Additional measures aimed at banking system stabilization Recovery of trust among market participants Maintenance of the banking system s current liquidity depositors to banks banks to banks banks to customers Short-term liquidity Large and medium corporate borrowers Pledging of guarantees for full deposit insurance Extended number of banks eligible for Interbank lending guarantees State support of key industries (infrastructure and strategic) Simplification of bank debt collection procedures. Exclusion of collaterals from bankruptcy assets in case of company s bankruptcy Prolongation of reduced requirements period for obligatory reserves Extension of securities list eligible for REPO Refinancing of loan portfolio under CBR Regulation 312: - Increase of individual limits - higher LTVs - Softer borrowers criteria - easier procedures - Longer maturities (up to 1 year) Resuming lending activity Small business Mortgage loans Auto loans Consumer loans Establishment of SME lending fund through the Russian Development bank similar to the AHML* Development of new refinancing mechanism (bank mortgage bonds issuing under AHML s* guarantees). Cutting the registration period for mortgage bonds Establishment of Automobile lending support fund as an instrument boosting demand for cars together with car producers Simplification of bank debt collection procedures Increase in the banking system s stability consolidation *AHML - Agency for Housing Mortgage Lending Defining banks, which form the core of the banking system (80% - in banks) Range of Incentives for consolidating banks : - Capital increase through Gov t buying preference shares; - Simplification of M&A procedure; - Cutting timing requirements 25

26 Rehabilitation, acquisitions, bankruptcies New owners Bankrupt Almost bankrupt DIA s rehabilitation Total 10 banks 6 banks 9 banks 7 banks 32 banks RUB bln At present 32 banks are in trouble (3.7% of the banking system in terms of assets), of which 16 banks are among Top-200 (2.6% of the banking system) 26

27 Government and CBR consolidation measures Consolidation process needs encouragement Proactively engage in M&A Strengthen capital base Simplify M&A Support consolidating banks 27

28 A view on the future Russian Banking Landscape: move towards core densification Today Impact of crisis Scenario: state stays Post-crisis longer term Scenario: privatization Other Other top200 Large Regional Large Private 6% 10% 7% 16% 3% 6% 7% 14% Crowded out via regulation, consolidation Grabbing MS from smaller banks, losses to larger banks Few rescues by state, some deposit outflow 1% 4% 5% 16% Further crowding out, consolidation Losses due to increased competition Acquisitions, reduced number of larger banks due to mergers within this group 1% 4% 9% 20% Further crowding out, consolidation Acquiring privatized smaller banks Acquiring privatized mid- and larger banks, some consolidation between larger banks Foreign 15% 15% M&A of smaller banks, some outflow of funds 16% Acquisitions 21% Acquiring privatized state banks State 47% 55% Taking control of some insolvent banks, net deposit inflow 57% Keeping prev. bailed out banks, benefiting from crowded out smaller and regional banks 44% Privatization of prev. bailed out banks and additionally 1-2 larger state banks 80% of assets Today* Impact of the crisis* State stays* Privatization* 50 banks ~45 banks ~20 banks ~25-30 banks * by total assets 28

29 Content Russian banking system in the context of crisis Fundamental factors of consolidation Banks Valuation Banking M&A in Russia: a reasonable strategy? The role of Government in encouraging consolidation Conclusions 29

30 Conclusions Consolidation is a step towards a more stable and mature banking system The Russian banking system in the medium-term perspective is one of the most attractive in the emerging markets State support is crucial for boosting consolidation Time to Buy? 30