Revenues from captive auto banks left – Newspaper Kommersant No. 66 (7511) dated 04/17/2023

At the end of 2022, captive banks of foreign automakers that ceased their activities in Russia showed a profit, while interest income fell at the same time. These players do not have new loans, and even the high quality of the portfolios of these banks does not make credit institutions themselves attractive from the point of view of purchase for a wide range of investors. The lack of a universal banking license, the strong dependence of the business model on the parent company and the need for approval of the transaction by the President of the Russian Federation reduce the likelihood of their successful sale, experts believe

Captive banks of foreign automakers that left the Russian Federation published their financial statements for 2022. All of them remained profitable. So, at Toyota Bank, net profit for the reporting period decreased by 12%, to 1.27 billion rubles, net profit of MS-Bank Rus fell by 78%, to 150.4 million rubles, Volkswagen Bank Rus was able to show a profit at the level of 2021, Mercedes-Benz Bank Rus increased this indicator by almost 20% year-on-year, to 615 million rubles. BMW-Bank Rus has not yet reported for 2022.

Despite varying results, all of the listed banks experienced a drop in interest income – by 7-40% depending on the bank. This is not surprising, given that they stopped providing new loans last spring (see Kommersant dated March 21, 2022).

At the same time, experts agree that it will not be easy to sell banking subsidiaries to foreign automakers, given the complexity and long terms of preparing and conducting transactions with them. “Even if there are buyers for such specialized banks, the discounts to capital are likely to be significant,” said Yury Belikov, Managing Director for Validation at Expert RA. The attractiveness of the purchase is also reduced by the fact that in order to acquire a foreign bank, it is necessary to obtain the consent of the President of the Russian Federation or a government commission, and this is a lengthy process, Kommersant’s interlocutors specify.

In addition, these credit institutions do not have a universal banking license, therefore, theoretically, only their purchase at a large discount for the purpose of subsequent short-term earnings on their loan portfolio may be of interest, Sergey Uchitel, a partner at the Pen & Paper Bar Association, believes. “Strategically, such a purchase may be of interest only to an automaker from a friendly country who has entered or plans to enter the Russian car market,” or local players who are interested in such a sales channel, he admits. So Avtodom bought all the assets of Mercedes-Benz in Russia, including the bank. Russian President Vladimir Putin signed an order to sell RN-Bank to AvtoVAZ on November 29 last year.

The problem with the investment attractiveness of specialized, in particular car loan, banks with foreign parent structures lies in their average low autonomy, “they have systems of risk management, internal control and audit, information technology support, corporate governance, strategic ensuring activities, the buyer does not receive a working conveyor,” notes Yuri Belikov.

The change of ownership requires building all these systems anew, he says. This means that the market value is reduced to net assets minus liabilities without significant additional bonuses, and this is indicative of a stable operating environment, Mr. Belikov adds. As a result, according to him, “it is not at all obvious how buying a specialized bank with limited autonomy can be better than buying its loan portfolio.” The portfolio of captive auto banks has traditionally been of high quality, Kommersant’s interlocutors admit. Before the market crash in 2022, Frank RG project leader Stanislav Sukhov notes, the share of overdue debt in some of them was at the level of 2–3% — even in large retail car loans, this level is twice as high.

Polina Trifonova