Emerging market banks are growing book value, with up to 20% a year in some cases and a loan-to-deposit ratio on average of 80%, and are less dependent on wholesale funding than their European counterparts, says Lewis Kaufman, CFA, Managing Director and Portfolio Manager of the Thornburg Developing World Fund.
“Much has been made about the crisis of confidence in European banking. One of the reasons is that European banks on average in general are levered about 25:1, so that’s a pretty big disparity in leverage. Another real focus point in the debate about European banks has been funding. Most European banks have loan-to-deposit ratios of perhaps 120%,” he said.
Kaufman includes Sberbank (SBER03.ME), the largest bank in Russia, in his firm’s Developing World Fund. The bank on average has assets to equity of about 10 times and is able to drive returns on equity for shareholders because of its 53% market share of deposits and about 30% on lending products, he says.
“The markets are so consolidated that Sberbank enjoys a high degree of pricing power across most of its banking products. It has extremely low levels of leverage. It has a very limited need to access wholesale funding. So it’s mostly immune to a lot of the issues that plague the European banks,” Kaufman said.