Another foreign bank is leaving Russia

The Swedish Nordea group is negotiating the sale of Nordea Bank.
The Swedish group Nordea is considering withdrawing from the Russian market, a member of one of the major industrial holdings told Vedomosti and confirmed by two bankers active in the M & A sphere. Since early 2017, shareholders of Nordea Bank have intensified negotiations with potential investors, one of Vedomosti's interlocutors says, but it is difficult to sell such a large asset, given the owners' expectations for their value. According to him, the group also allows the sale of the loan portfolio instead of a full-fledged deal to sell the bank. According to the accounts for August 1, the bank's balance sheet included loans for 116.3 billion rubles.

Among those with whom the group contacted for a possible transaction, Loko-Bank and Sovkombank, two interlocutors of Vedomosti know.

As a result of the second half of the year, Nordea ranked 39th in the Interfax-CEA ranking with assets of 210.7 billion rubles. Most of the bank's assets are accounted for by the corporate loan portfolio - the retail business bank folded.

Nordea has been operating on the Russian market since 2006 - then the group acquired Orgresbank. The group was one of the few who, after the crisis, did not announce intentions to leave the Russian market (see chart).

In January of this year, Nordea sold its retail portfolio at 16 billion rubles. Sovcombank, 97% of loans were mortgage, the rest - car loans and consumer loans. The bank began to wind down retailing since 2015, when the bank analyzed the dynamics of the population's incomes, the impact of devaluation, inflation and the unemployment rate.

"For Nordea, the sale of the retail loan portfolio is an important step in the reduction of retail operations and the strategy for building a corporate investment bank in Russia, which the bank has been implementing since 2015," said Mikhail Polyakov at the time. One of the bankers knows that the idea to sell Russian business for three years, but the buyer was not found.

In response to Vedomosti's questions about whether the sale of the bank is planned and whether other options for withdrawing from the Russian market are being considered, the Nordea Group representative said that he does not comment on market speculation and rumors. The representative of the Russian bank "Nordea" declined to comment.

Sovcombank does not negotiate the purchase of Nordea, Dmitry Gusev, through the bank's representative, said. The representative of Loko-bank says that the bank has been looking for two years to expand its business by buying: "In all purchases made during the past two years with participation of foreign subsidiaries, we participated as bidders. We can not name concrete names of banks, but only foreign banks considered it. "

"The bank has quality assets, but a large amount of loans, about half of the portfolio, are guaranteed by the parent bank, which allows the Russian" daughter "to issue loans that exceed 25% of its capital. Plus, most of the funding is provided by the parent bank. If there really is a sale, then for a potential Russian buyer there will be two difficulties: the first - without the above guarantees will need much more capital, so as not to violate the risk norm for one borrower, and the second - the replacement of funding, "says Fitch analyst Alexander Danilov.

Why did foreign banks become uncomfortable working in Russia

The business of banks with the participation of non-residents continues to decline. The share of 100% foreign subsidiaries among the top 30 banks by assets in 2008 was 6.1% (six banks), in 2012 - 4.6% (five), and by the end of 2016 it decreased up to 3.8%. The total number of banks with the participation of non-resident capital in the industry has fallen even more significantly: from 244 credit institutions in 2012 to 174 at the end of 2016.

One of the reasons that affects the compression of the segment of foreign banks is the increased role of state-owned banks in the market. As the NRA estimates show, the concentration of bank assets in Russia is increasing in favor of credit institutions with state participation, and in many key parameters. Thus, the growth rate of assets of banks with state participation is much higher than the average market: assets of top-15 organizations with state participation increased by 94.4% in 2012 (compared to 2008, by 83.4% without Sberbank), and in 2016 The rate of growth in relation to 2012 amounted to 76.2% (91.9% without Sberbank). For comparison: the growth rate of the assets of the entire banking system was 76.7% and 61.7%, respectively.

In 2016, state banks issued 65.7% of all retail loans and 71.7% of corporate loans. For comparison: in 2008, the top-15 banks with state participation accounted for only 43.8% of the retail portfolio and 54.3% of the corporate portfolio. As a result, the share of top 15 credit institutions with state participation in total assets was 51.2% in 2008, 56.4% in 2012, and 61.4% in 2016.

It is obvious that the growth in the market share of state-owned banks is not due to their particularly high-quality services and products. The fact is that, against the backdrop of market cleansing from financially unstable banks and revocation of licenses, a number of credit institutions are transferring clients to banks with state participation, and private banks, and especially banks with non-residents, are losing ground.

In the current situation, foreign "daughters" are also difficult to develop business, and they continue to reduce their portfolios; few of them continue an active marketing policy, units are spent on advertising.

The presence in the corporate segment is particularly rapidly declining, where, in addition to the geopolitical factor, the demand for borrowed resources from the largest corporations is also affected. And for the existing demand, banks literally have to fight - all the banks want to work with large enterprises from the backbone industries. At the same time, foreign subsidiaries under the conditions of credit corporate products knowingly lose to state-owned banks (even by price parameters, moreover, state-owned banks are more liberal in covenants, and the factor of "administrative choice" of partners has also become very significant). Thus, even with the restoration of demand for loans in the corporate sector, non-resident banks are likely to not be revived and will continue to reduce their portfolios.

In the coming years, according to our estimates, the decrease in the number and share of foreign banks on the Russian market will continue. And the option of selling these banks is also unlikely - at least if it is a matter of selling the banking business, rather than folding up to the state of "shells" of banks with a license, but without a client base and infrastructure. Many foreign banks have been receiving losses for a long time, and for them the best option is a gradual "freeze" and, possibly, the closure of the business without generating new losses.

But still, if we talk about the winding up of the business and its complete closure, then finally the banks outside the top 30 will probably leave the banks for assets that are more specialized in the corporate segment or have previously worked partly in retail or lent small and medium enterprises. For such foreign banks, the future on the Russian market does not promise any prospects.

Credit organizations from the top 50 will continue to operate in the domestic market, carrying out point transactions and maintaining current contracts. Small banks that serve subsidiaries of foreign companies, in particular, the "daughters" of Asian financial groups, and niche lending institutions, for example banks connected with auto concerns, are also unlikely to leave Russia. They will continue to conduct business in their segments, but without active growth.

Recalling the fears of bankers that foreign banks that have a global network, huge resources, cheap funding, advanced technologies, will seize the Russian banking market by 2020, now we can state that this scenario is not being realized exactly. Even if the Russian banking market starts to grow steadily under conditions of relative macroeconomic stability (which is also still in question), foreign banks will not be able to occupy a significant niche. The dominant public sector and several large private banking institutions are taking an increasing share of the market, with the concentration process accelerating. Foreigners leave Russia, as one would expect, without capturing it, but bearing losses.