Banks: the good, the bad, the ugly?
Financial crisis in the banking industry: challenge or window of opportunity?
Since the end of 2014, banks have been facing increasing pressure on their assets and capital. Various estimates indicate that the volume of overdue debt at Russian banks at the beginning of 2016 is higher than in the 2008-2009 crisis. Retail lending was the first to notice the weakening market conditions.
By the beginning of 2016, banks also started seeing outstripping growth of overdue loans in corporate portfolios. This business line includes the least transparent segment—related party lending—where recognition of a borrower’s troubles can be deferred the longest. Due to the protracted nature of the present crisis, the banking sector can expect a delayed effect from the recognition of overdue receivables and write-offs in corporate portfolios.
However, the current crisis can be a window of opportunity to restructure a business, review business models, and carve out non-core assets and businesses by creating a “bad assets bank” focused on restructuring or improving assets or realizing their liquidation value. Such an approach allows for retaining the most viable and promising business lines and focusing on their development. It is a difficult choice, but one that many will have to make.