Translated material
Gref is scary
The heads of Sberbank and the Central Bank differ greatly in their assessment of the growth of overdue debts
Sberbank President German Gref confirmed yesterday his commitment to a conservative financial policy. He said he would continue to increase loan provisions as bad debts become a major concern for banks in 2010. Mr. Gref gave a frank forecast for overdue debt: in his opinion, it will be no less than 20%, which is twice the estimate of the Bank of Russia. According to analysts, of the officials, the head of Sberbank was closest to the truth.However, Mr. Gref added that the overdue period of Sberbank itself will be lower. “Sberbank has less because the quality of loans is better,” said the head of the bank. However, despite this, Sberbank will continue to build up reserves for possible losses this year. “2010 is unlikely to be the year of dissolution of reserves. We believe that this will happen in 2011-2013,” said Mr. Gref. According to him, last year Sberbank increased reserves to 10.2-10.3% of the loan portfolio. Reserves cover the volume of overdue loans by 2.4 times.
At the same time, the bank is trying to follow the calls of the government and financial authorities to intensify lending and lower interest rates. From January 15, the bank resumed lending to individuals in foreign currency for the purchase of housing and reduced interest rates for participants in salary projects on a number of loans. Earlier, from December 1, Sberbank lowered rates in foreign currency on consumer loan programs for individuals. For participants in salary projects, the bank has set interest rates at 90% of the base interest rates in rubles and foreign currency for some loan products. According to data at the end of last year, Sberbank's share in the retail lending market exceeded 32%.
According to the Central Bank, as of December 1, 2009, overdue debt on all bank loans in relation to the total amount of loans issued was 5.2%. The share of overdue loans to the non-financial sector is 6.3%, for loans to individuals - 6.8%.
“Overdue debt is now a big problem for all banks, and Sberbank’s balanced policy of increasing reserves is justified,” says Infina Financial Center analyst Veronika Chekina. -- However, Sberbank, unlike many other banks, has a significant amount of free liquidity and can use it to increase its loan portfolio. Thus, “bad” debts will be eroded into the total volume, which will lead to improved performance.”
However, Andrey Vernikov, Deputy General Director for Investment Analysis at Zerich Capital Management Investment Company, believes that the prospects for Sberbank’s securities on the stock market are not as rosy as it might seem. “Now state support for the financial sector is ending; the bankers’ good wishes remain for the state to create a fund of “bad” assets. Sberbank's capitalization is greatly inflated when compared with the capitalization of energy companies. In total GDP production, the contribution of the financial sector is only 6%. Investors who are now buying Sberbank shares are not thinking about increasing the efficiency of the financial sector and not about the bank’s 2014 strategy, but about the fact that the state will continue to support Sberbank, and this is a deep misconception,” he notes.
The Central Bank is not inclined to dramatize the situation with “bad” debts. The head of the Bank of Russia, Sergei Ignatiev, indicated earlier that the worst stage for the country’s financial system has already been passed. In November, he said that the volume of overdue loans in the Russian banking system had practically stopped growing in the last two months: the growth rate of overdue loans had fallen from very high at the beginning of the year to almost zero by the end of autumn.
As Veronika Chekina notes, the forecast expressed by German Gref is the most daring of the official estimates and is closer to the truth than the forecasts of the Central Bank and other departments.
“The delinquency on corporate loans today is really high, and its further growth really creates the danger of a new banking crisis,” notes Pavel Gennel, CEO of the Capital Financial Corporation. -- The likelihood of this crisis depends both on the behavior of the banks themselves, who will have to choose between restructuring overdue debts or their collection with the subsequent probable bankruptcy of the borrower, and on possible changes in the policy of state support, which will either retain its previous form and continue to increase the problems of private business , or will take the form of stimulating not individual enterprises, but industries. In this case, the state will really help the economy and reduce the likelihood of a second wave of the crisis.”
Yesterday German Gref also expressed concerns about the emergence of another “bubble” in the Russian stock market. “In conditions of excess money supply, the value of the stock market and the cost of commodities are pumped up. It is obvious that we will have another deflation of this “bubble,” he said. “It is very important in the first half of 2010 not to miss the moment when we could fall into the stage of overheating of asset values.” The head of Sberbank said that he does not undertake to predict when exactly the “bubble” will appear, but “it is obvious that it has already begun to inflate.”
According to Mr. Gref, the Russian financial sector suffers from the disease of rapid growth and is experiencing all the shortcomings associated with the underdevelopment of the market. He believes that the authorities must have tools that make it possible to collect liquidity from the market in a timely manner and have control over the money supply. In particular, such a tool is securitization.
The risk of a bubble forming in the Russian stock market certainly exists, agrees Pavel Gennel. “And the reason for this is not only the shock work of the American printing press, but also the inadequacy of anti-crisis measures to support the economy, which make lending to the real sector so risky that most banks invest only in currencies and securities,” the banker emphasizes. -- And the more the government helps ineffective state-owned enterprises and creates various kinds of state corporations, the greater will be the risk of investing in private enterprises, which will never be able to successfully compete with state-backed players, whose products the state will first finance, and then at least subsidize, and even better - he’ll buy it in full.”