MDM Bank’s notable underperformance against its publicly listed Russian private banking peers in the crisis is perhaps inevitable given its large exposures to retail investors and small and medium enterprises. Even as the economy staged a rebound last year, non-performing loans remained at 15% in the third quarter.
But in a bid to diversify its deposit base, boost credit quality and reduce liquidity risk, MDM Bank merged with Ursa Bank to create the country’s second-largest private bank in August 2009. MDM Bank has, thus, cannily beefed up its balance sheet, risk management and efficiency. Underscoring market confidence in the bank’s merger, MDM Bank became the first financial institution to access the debt capital markets with a $250 million syndicated loan in October 2009, followed by a Ru5 billion bond issue in December.
In a country known for its torturously slow pace of banking consolidation, the marriage between MDM and Ursa Bank is no mean feat. Nevertheless, the bank’s board of directors may come to regret its decision in May not to pay a dividend to shareholders for its 2009 earnings, despite protests from stockholders, who argue the bank has enough cash on its books.
If the move is seen as a classic expression of weak loyalty to minority investors in Russian business culture, MDM Bank’s stock and capital-raising efforts are likely to suffer in the short term. But that should not take the shine off the merger, which has put the bank on a sounder footing for years to come.