Belarus to see banking reshuffle

By bne IntelliNews February 1, 2012

Sergei Kuznetsov in Minsk -

The Belarusian authorities may have decided not to sell a stake in Belarusbank due to the unfavourable market conditions, but a year after the last M&A deal in the country's banking sector, when Sberbank of Russia bought state-owned BPS-Bank, new bargains could be soon available - and Russian capital will probably be front and centre.

Sergei Dubkov, deputy governor of the central bank of Belarus, tells bne that the regulator has proposed to Russia's VTB Bank to sell the Belarusian government its Belarus' subsidiary, Moscow-Minsk Bank, ninth by assets, so that it can be merged with state-owned Belinvestbank, the fourth-largest bank. "This is a move to increase Belinvestbank's capitalisation, enhance its market role and further commercialisation. This is just one of many options. We are having certain dialogue [with VTB]," Dubkov explains.

Yet the Belarusian authorities and VTB aren't confining themselves to just Belinvestbank. According to Dubkov, VTB recently said that it's eying a 100% stake in its Belarusian subsidiary VTB (Belarus). "Bank VTB has made this proposal, and Belarus is ready to consider selling these shares. Belarus owns approximately 24-25% through state [oil and chemistry] concern Belneftekhim and its subsidiaries," he says. "The Belarusian government is pondering over this possibility, because VTB is a large player in our banking market. It is one of Russia's largest banks. VTB is interested in developing its business - both bank and non-bank segments - in our country."

The deputy governor notes "positive dynamics" in the talks with Russian VTB, but gave no specific timeframes for transactions.

Also in the limelight is Belgazprombank, the country's seven-largest bank, a subsidiary of Russia's Gazprombank, controlled by the natural gas monopoly Gazprom. Previously, Gazprom Deputy CEO Andrei Kruglov said the Russian gas giant was going to sell Gazprombank and its Belarusian subsidiary, though Dubkov says: "There have been no specific talks with the Belarusian regulator over this matter."

According to Dubkov, the likely sale of Gazprombank and Belgazprombank is an understandable strategy of the gas monopoly. "The situation when a big corporation runs affiliated banks belongs to the 1990s [in the former Soviet Union]. All large corporations tend to withdraw from affiliated banks now," he says.

Family silver

Over two years ago, the Belarusian authorities announced a possible sale of up to 25% in the country's largest commercial bank Belarusbank, fully controlled by the state, to a foreign investor. However, the project has been frozen for the time being, Dubkov says. He believes it is a bad time to sell now. "To sell assets at their fair value, we need to have a favourable environment for buyers and sellers. The environment is not favourable now, specifically due to macroeconomic imbalances in Belarus, exchange rate fluctuations and the inflation rate. Therefore, it is hard to speak about sale of any specific banking assets," Dubkov says.

Belarus has been faced with economic crisis since the start of 2011 - the Belarusian ruble has fallen by approximately 180% as a result of two one-off adjustments, while inflation reached 109%.

In Europe, too, the situation in the banking sector remains unfavourable and it is the nationalisation of banks that has brought about most of the modifications to the shareholder structures. One exception is last year's acquisition of Volksbank International (VBI) by Sberbank of Russia. "But this is Sberbank's strategy, and Sberbank, the largest bank in the CEE region, can afford it," Dubkov says.

At the same time, the Belarusian authorities haven't given up their strategic goal of selling Belinvestbank and Paritetbank, Belarus' 13the largest bank by assets. "The strategic objective has remained unchanged - to invite strategic investors in Belinvestbank and Paritetbank. A strategic investor must have banking as its core business and provide technology and capital," Dubkov explains.

At the same time, he warns that the sale of the two banks is not a process that can be completed in the short run. "This is true for both, but especially for Belinvestbank, because the health of the entire banking sector depends on this bank. The question is not to sell fast. It is not a troubled bank, it is an efficient bank. We also have to work out a long-term programme for its development - like the one Sberbank has for BPS-Bank," Dubkov says.

He assumes that it will be easier to sell Paritetbnak than Belinvestbank, as the former is smaller and the price will be less significant. Dubkov says that the authorities are in talks with a potential investor over the possible sale of Paritetbank, but declined to give the name of the potential buyer.

Neighbourhood watch

Twenty-six out of 31 commercial banks currently registered in Belarus have foreign investment in their authorised capital. "A major approach in attracting investors in the national banking system is that they should represent countries that are our major trading partners or neighbouring states," Dubkov says.

However, Belarus unexpectedly encountered a problem in trying to sell a bank to Lithuania when Bankas Snoras, one its preferred candidates, went bust at the end of last year. "The deal won't happen now," he says.

As of November 1, the foreign share in Belarusian commercial banks stood at 29%. Russian investments account for 14% of combined authorised capital. "When it comes to other criteria, such as capital and asset share, we cannot say that investors from a single country dominate," Dubkov says.

"Russian investments are widespread in Belarus' banking system. We have almost all major Russian banks represented here. No wonder: Russia is one of our major trading partners. Depending on the period, that county ranks first or second by exports and imports," Dubkov underlines.

According to him, Belarus' banking system is sufficiently balanced now in terms of foreign investors' exposure. "We have sector-specific foreign investors present here, which have skills and knowledge, and the National Bank knows the ultimate beneficiaries", Dubkov says.

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