Banks become more conservative. First 2010 results
Preliminary results of Russia's bank performance in 2010 indicate improvements in the main credit institution operation parameters (the 2008-2009 aggregated indicators also saw positive movements). It was clear throughout the year that banks did not see any deficit of money in 2010. How did they manage their funds? The following diagram (see the figure) shows that there were no significant changes in the key sections of the Assets part of the Russian banking system. Some interesting trends have been observed, however.
Source: Bank of Russia
The banks successfully paid their debts to the central bank thus reducing the volume of ‘accounts with the Bank of Russia' in the total assets. Other sections of the assets part, with the exception of two, remained unchanged. ‘Investments in securities' increased from 13% to 18% while ‘credits and other loans' fell from 71% to 68%. Banks redistributed their funds after revaluation of risks associated with these types of funds allocation. In the light of growing loan delinquencies (from 2.9% of the total loans in early 2009 to 4.9% at the end of 2010) financial organizations became more cautious about lending. This is quite understandable as risks associated with this type of assets are still high which requires banks to keep bigger reserves to cover potential losses and hold a certain amount of own funds. They also lead to lower levels of profitability. At the same time, investing in debt securities has smaller aggregated risks (taking into account the issuer's category, government guarantees and terms of maturity). Notably, the volume of bank-owned securities has grown in a large part due to purchases of debt obligations issued by the Russian Federation and Bank of Russia whose market yield is lower than the cost of credits. It seems that the crisis taught the banks to be more conservative: they seem to prioritize investment risks rather than the level of profits.
By Galina Kovalishina,
head of the Corporate Finance Department
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