Included in the top 30 in terms of assets in the Russian Federation, the Ural Bank for Reconstruction and Development (UBRD) reported on receiving 8.7 billion rubles in 2022. loss, with a net profit of more than 1 billion rubles. a year earlier. The bank cites foreign exchange transactions and currency revaluation during the introduction of Western sanctions as the reason. The loss could have been generated by derivative financial instruments (PFIs), experts specify. Shareholders have already supported the bank with a non-refundable contribution covering the loss.
At the end of 2022, UBRD received almost 8.7 billion rubles. loss against 1.1 billion rubles. net profit in 2021, follows from the report under RAS. Of the top 30 banks in terms of assets that have already disclosed financial statements, this is so far the highest negative result after VTB (minus 757 billion rubles) and Alfa-Bank (minus 117.1 billion rubles).
The bank said that due to being included in the sanctions lists, “the subsequent foreign exchange transactions and currency revaluation could not but have a significant impact on the financial result and reporting under RAS.”
Against the background of the prevailing external factors in 2022, the bank recorded a one-time loss, they indicated there. In February-March 2022, UBRD was sanctioned by Canada and the UK, and in February 2023 the bank was added to the US SDN list. However, no significant amounts were kept abroad: at the beginning of February 2022, the balances on correspondent accounts in non-resident banks amounted to 1 billion rubles. According to the statements, the most significant loss was brought to the bank by operations with financial assets – 18.3 billion rubles.
UBRD ranked 28th in terms of assets, according to the Interfax rating for 2021. The Bank operates primarily in the Urals Federal District. In the latest rating report dated May 30, 2022, ACRA also drew attention to the large amount of funding for investment projects, the implementation of which depends on the timely delivery of equipment “in the face of growing sanctions pressure.” According to ACRA, such lending is a high-risk business segment, exceeding 200% of the bank’s capital under IFRS as of the end of the third quarter of 2021.
Banking expert Alexei Nechaev believes that the loss could have been generated by derivative financial instruments (PFIs), on the off-balance sheet accounts of the bank at the beginning of February 2022 there were about 200 billion rubles. Due to derivatives, banks can regulate their open foreign exchange position. At the same time, he notes, UBRD at that time had both claims and liabilities on derivatives, and approximately in comparable volumes, “from this we can assume that this was an arbitrage business – the bank could sell derivatives to customers, and block them (close emerging currency position) on someone else.” According to Mr. Nechaev, the terms of transactions with derivatives usually include triggers that allow them to be forcibly closed unilaterally (for example, a downgrade of a sovereign rating or a bank rating, etc.). Thus, it is possible that some derivatives were forcibly closed to the bank at a loss, the expert admits.
In addition, according to the latest detailed report (end of the third quarter of 2021), the bank had a portfolio of Eurobonds with a carrying value of RUB 15.2 billion. However, they not only did not give a loss, but could also bring income, Mr. Nechaev believes. In particular, almost 1.9 billion rubles, reflected in the report, income from operations with securities.
For 2022, the volume of gratuitous financing (contribution to property) amounted to 11 billion rubles, the report shows. There is no loss in the calculation of regular capital, “probably, the injection of shareholders’ funds was interpreted as income that covered the loss,” Alexey Nechaev draws attention.
In 2022, the shareholders carried out an additional capitalization of the bank, “which fully covered the loss and allowed the bank to meet the capital adequacy ratios (N1.1) with a margin,” the UBRD said.
Traditionally, the bank has been low-income, notes Dmitry Kurbatsky, managing partner of FG Dmitry Donskoy. But in 2023, UBRD expects overall growth in revenues and assets, maintaining the growth rate of the client base and achieving an ROE of more than 15%.