Bank Otkritie reported record profits on August 10 with the Central Bank of Russia starting to actively look for a strategic buyer of a controlling stake in the lender.

However, the bank itself is aiming for an IPO in 2022, to capitalise on the current window of enthusiasm for Russian stocks, according to bne IntelliNews sources close to Otkritie. There has been a string of successful billion-dollar Russian IPOs in the past year as international markets are awash with liquidity and western stock markets are already at all-time highs, leaving little upside for investors.

“The CBR has announced it is looking for a buyer, but it's more likely to IPO given the current market environment,” a source close to the bank told bne IntelliNews.

The RTS has already returned circa 20% year to date, but the bulk of portfolio investment has gone into the financial sector – widely used as a proxy by investors looking to invest into Russia’s economic recovery – and the sector’s shares were up a whopping 57% YTD as of August 10.

The CBR took over Otkritie during the “Garden ring banking crisis” when a series of Russia’s biggest commercial banks ran into trouble and nearly collapsed as part of the regulator’s attempts to clean up the sector.

The central bank recapitalised them and quickly returned stability to the sector, which came close to a systemic meltdown, but the regulator took the unusual decision to take the banks onto its own balance sheet, though, awkwardly, it is in the position of being both a bank owner and the regulator of the banking sector. The CBR remains keen to unload these banks and announced last week that it was actively looking for a buyer for Otkritie.

The former owners and state firms are barred from participating in the bank’s privatisation. In theory, the bank should be easy to sell or list as it has been performing well, with the sector as a whole posting the best profits in five years and Russia’s banking titans Sber and VTB both registering record profits in the past month.

Highest in history

Chairman of the management board of Bank Otkritie Mikhail Zadornov said: “For the first six months of 2021, Otkritie reported a net profit of RUB38bn – the highest half-year result in the Group’s recent history. The Group’s return on tangible equity (ROTE) for the period stood at 19%.”

Citing improvements in operating efficiency, Zadornov went on to say “These results were achieved thanks to growth of Otkritie’s core banking income, which increased by 39% y/y and accounted for more than 70% of operating income. The results were also positively impacted by a reduction in the cost of risk, as well as continued stability in the quality of the loan portfolio and high loan loss provision coverage.”  

Bank Otkritie has returned strongly since its 2017 collapse and subsequent bailout by the central bank, cleaning up its balance sheet by ridding itself of toxic assets.

The bank’s profit of RUB38bn ($282mn) for the first half of this year is an increase of 2.6x y/y. Return on tangible equity (ROTE), rose from 8.3% for 1H20 to 18.9% in 1H21 driven by rapid growth of regular banking income.

The group’s revenue (operating income before impairment of assets) for 1H21 increased to RUB100bn, up by 23% y/y. Operating expenses grew by 6%, resulting in a reduction of the cost-to-income ratio (CIR) from 59% in 1H 2020 to 51% in 1H21. In addition to rising costs, the cost of risk (COR) was 0.5% for 1H21, a significant decrease y/y from 1.6% in 1H 2020.

According to the bank’s own balance sheet, the Group’s total assets grew by 6% and reached RUB3,684bn as of June 30, 2021, with working assets comprising RUB2,552bn, or 69% of the total, the bank said in a statement.

The gross loan portfolio grew by 11% to RUB1,900bn as of June 30, 2021, mainly due to significant growth of lending to individuals and SMEs.

The group increased its volume of loans granted to SME borrowers in 1H 2021, growing by 65% year-on-year to RUB81bn. The number of active SME customers of Otkritie bank and Tochka bank reached 528,000 as of June 30, 2021.

Customer deposits and accounts are the core source of the group’s funding structure, accounting for 66% of total liabilities or RUB2,086bn as of June 30, 2021, up by 6% in 1H 2021.

The total capital adequacy ratio (Basel III) as of June 30, 2021, amounted to 14.5% (15.3% as of December 31, 2020) due to continuing growth of the group’s business and risk weighted assets (RWA). RWA and regulatory capital grew by 10% and 4% to RUB 3.1 trillion and RUB452bn as of June 30, 2021, the bank reported.