By Jason Corcoran in Moscow -
Renaissance Credit, the Russian consumer lender controlled by billionaire Mikhail Prokhorov, is seeking to increase its market share through the possible acquisition of rivals teetering on the brink of extinction.
The bank said on September 21 that it halved its loss to RUB3.1bn ($46.8mn) in the first six months of 2015 compared with the same period last year. Its problem loans shrank to 17% from 22% as stricter lending requirements introduced 18 months ago began to take effect.
"We are considering ways to scale the operation after the risk issue has been solved," chief executive Alexey Levchenko tells bne Intellinews in an interview in his Moscow office. "Right now the risk trend is okay."
RenCredit, which is 83% controlled by Prokhorov, is understood to be in talks about taking over beleaguered rival Svaznoy with a possible deal in sight in October.
Levchenko is tight-lipped about any transaction as talks, which date back as far as 2013, have been complicated by Svaznoy's worsening financial plight and the involvement of the Central Bank of Russia. All he says for now is that RenCredit is "considering different forms of future cooperation" with the other bank.
Svyaznoy filed at least three lawsuits earlier this year accusing its founder Maxim Nogotkov of breaching loan terms. The lawsuits related to a RUB120mn loan that Nogotkov took out with the bank before problems with creditors occurred. The bank requested the loan be repaid months ago, but Nogotkov has refused to comply, the business daily Vedomosti reported.
Svyaznoy's capital adequacy level is believed to be a critical level and near to the point where the central bank is obliged to intervene and revoke its license. In May, Forbes reported that Prokhorov was able in a meeting to convince governor Elvira Nabiullina of the necessity to save Svazynoy.
Svyaznoy has already attracted the interest of Oleg Tinkov's TCS Bank, which is looking to buy another loan book having scooped up two portfolios worth over 3bn rubles during the summer. London-listed TCS, which returned to profit in the second quarter, is seeking to increase its loan book in to accelerate a recovery in earnings.
Lenders limp on
Russia's specialist consumer finance lenders have seen their profits plunge as an economic recession has prompted a surge in bad loans. The central bank has compounded their problems by tightening regulation to restrict the interest rates they can charge households.
Many investors doubt whether Russian Standard Bank, one of the country's top 20 lenders in term of assets, will survive. It has sought another debt restructuring from its bondholders after it already bailed out twice this year.
Vostochny Express is another in trouble. On September 18, Moody's downgraded the bank's deposit and its debt ratings due to the "continued deterioration of the bank's asset quality and profitability because of the heightened risks in the bank's unsecured consumer loan portfolio".
As of July 1, Vostochny's share of retail loans overdue by more than 90 days soared to 24.2% from the already high 21.3% at the end of last year. On October 2, the bank's shareholders will hold a meeting to discuss a new share issuance with the total nominal value of shares at RUB3bn.
However, Moody's warned this not be sufficient to fully cover the losses the agency expects the bank to incur in the second half of 2015.
RenCredit, which has canned plans for an initial public offering, offers consumer loans, credit cards and deposit services to more than 7mn customers in Russia, according to the company's website.
Prokhorov's Onexim Group, which wrested control of RenCred and its sister investment bank from its founder Stephen Jennings in 2013, stepped in to boost the bank's capital by $200 mn last year.
Prokhorov's deep pockets mean RenCredit is safe, as is Home Credit & Finance, backed by Czech billionaire Petr Kellner's PPF Group.
"Operational things are looking okay based on fundamental things such as the cost of liabilities are going down because every month we are seeing a re-pricing of retail money," Levchenko. The CEO predicts retail deposits will grow this year by 30% while the loan book, which contracted sharply after the record rate hike in December, only started growing again in May and may be flat for the year.
Deposits have grown to about RUB80bn, partly thanks to RenCredit's involvement as an agent on the behalf of the Deposit Insurance Agency. The bank has been appointed 10 times as an agent to pay insurance compensations for banks whose licenses have been revoked by the CBR.
"We are retaining 25% of deposits,'' Levchenko says. "For me operationally, it's convenient in a certain region or area where we are not exposed.''
Meanwhile, the RenCredit head insistes the bank's capital adequacy is solid at about 6.5%, which is above the 6% threshold required.
A veteran of 13 years at the bank, Levchenko knows he isn't out of the woods yet. A keen coin collector, he is constantly focused on tightening costs, he says.
The bank has cut 10% of its branches this year and is monitoring the profitablility of each unit. Operational centres will also be cut by 10-20% this year.
Levchenko is confident RenCredit will return to profitablity in the first quarter of next year following the annual re-pricing of deposits in December. "This is crucial for the entire banking system,'' he says. "If you get it wrong, you are in trouble.''
The bank has also been the using the additional liquidity from growing deposits to buy back its bonds. After a series of transactions, the bank has $150mn left to pay from its $350mn senior debt, and $165mn left of its $250mn subordinated debt.
"It's important to keep relations with bond investors open and transparent,'' he says. "Staying positive, you are thinking it won't be forever. If you think it's forever, you should close the door."
The current crisis is much deeper than 2008-2009, according to the executive."But risk-wise, we are in better shape and much more prepared for the prolonged period of pain."
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