The key issue of the concept is the state's gradual retreat from the authorized capital of state-owned banks. This first of all applies to Russia's two largest banks, Sberbank and VTB. The government's stakes in them are to be reduced to about 50% in the mid term. Anatoly Aksakov, member of the NBC and deputy chairman of the Russian parliament's committee on lending institutions and financial markets, said that the state would leave both banks within the next 5 to 7 years, keeping only blocking stakes, i.e. 25% plus 1 share.
At present, the government holds over 99% of VTB, and the Central Bank owns about 64% of Sberbank. These lending institutions are the biggest players in the Russian banking system. In the three quarters of 2006, Sberbank and VTB held 1st and 2nd place respectively for the size of their assets and amount of corporate loans. Sberbank traditionally controls over 50% of individual deposits, and VTB services the government's largest export contracts and the state bodies.
Debates are ongoing on how the government will be reducing its stake in the banking system at the early stages. There is talk about VTB's IPO plans, which is expected to float in Russia and abroad (most probably, in London), and also of Sberbank's additional issue.
At the government's latest meeting with President Vladimir Putin, Economic Development Minister German Gref said that VTB intended to float its additional issue to the amount of 90-120 billion rubles ($3.4-$4.6 billion) in the first six months of 2007. As much as 20%-22% of the issue will be placed on the market, and the government's stake will be reduced to 78%-80%.
He also said that Sberbank's additional issue scheduled for early 2007 would amount to 198 billion rubles ($7.6 billion), so the Central Bank would be able to reduce its holding to 55% of ordinary stock.
Earlier Finance Minister Alexei Kudrin said that the structure of these issues would be different: Sberbank is to place its stock on the domestic market, and VTB both in Russia and abroad.
It is highly probable that both stocks will be very attractive for investors. Few Russian banks - Sberbank included - are listed on the stock market at present, and it is not enough to meet the growing demand for Russian banking stocks and to improve Russian banks' ability to attract additional funds.
VTB is not among these few banks, but it has a good chance of a successful IPO. Its active development, reliability, good financial performance and compliance with international standards have already led Moody's to award its three-year ruble-denominated Eurobonds an A1 rating. The VTB management plan to expand its operations 10-15-fold within the next five years in order to make it in the world's top 50 banks. At the end of 2005, VTB was ranked only 122nd and Sberbank 82nd by The Banker.
Overall, the state's gradual withdrawal from banks should have a positive impact on the development of the Russian banking system if the right approach is chosen. State presence in a bank gives it an advantage, but after the concept is carried out, there will be equal competitive conditions for all players in the domestic banking market.
Reducing its holdings in banks' authorized capital, the government looses the possibility to use the funds inefficiently, for example by issuing non-core and unprofitable loans. This should improve transparency of leading banks, which in turn will allow estimating the real value of assets. This often leads to further capitalization growth and improves a company's image.
As to Sberbank, it now has an important social role. The bulk of the population's utilities and housing bills, as well as pensions and some salaries are paid through this bank. It enjoys people's trust, which can be disrupted if privatization leads to serious changes in its policies. At present many view it as a government institution rather than a bank. However, the authorities are considering the possibility of involving people in Sberbank's privatization. They plan to hold the so-called "popular IPO", when part of the bank's stock will be offered to individuals.
The process of reducing the state-owned stakes in Sberbank and VTB will go hand in hand with an equally important reform of other state-owned banks that perform specialized functions. There are three of them, Vnesheconombank, the Russian Bank of Development and Roseximbank. They will be merged in the Russian Bank for Foreign Economic Activities and Development. The new bank will provide refinancing for specific programs of commercial banks, such as large infrastructure projects, innovation projects, and small and medium-sized businesses.
The idea is to do it on the market basis, including money payback and sharing risks between the state and commercial banks. Projects will be selected not by government or Central Bank officials, but by experts who have the necessary experience and are interested in providing financing for really effective projects.
Overall, the concept will have a healthful influence on the Russian banking system, as it envisages both the state's withdrawal from the sector and return there through market institutions that can improve its efficiency.