MOSCOW, July 17 (Reuters) - The owners of Nomos Ban
k and Otkritie Bank are in talks about a merger to create Russia's second-biggest private lender by assets and step up competition to state-controlled industry leaders, a source close to the talks said.
The talks are likely to have 'a positive ending', the source said on Tuesday. Nomos and Otkritie declined to comment.
Russia's banking industry is dominated by two state-controlled groups, Sberbank and VTB, and a large number of smaller players widely seen as needing to merge to strengthen and compete.
A merger of Nomos and Otkritie would create a bank with combined assets of 608 billion roubles ($19 billion), putting it second to Alfa Bank, part of oil-to-retail tycoon Mikhail Fridman's empire and whose assets stood at 913 billion as of April 1, according to Interfax.
It would be the biggest such deal since mid-sized lenders MDM and Ursa bank merged in 2008, with the aim of catching up Alfa Bank and becoming stronger competitors against the state-controlled banks.
The combined bank would still be significantly smaller than the state giants - Alfa's balance sheet is just one-twelfth the size of that of market leader and Europe's No.2 lender Sberbank.
As of the end of the first quarter, Nomos's assets were up 23 percent year-on-year to 455 billion roubles, while Otkritie's assets were up 17 percent to 153 billion roubles, according to Interfax data.
'If Nomos simply buys a stake in Otkritie, there would be speculation of further additional capital to be raised as Nomos will also probably acquire 44 percent in Bank Khanty-Mansyisk (BKM) in September,' Uralsib analysts wrote in a research note.
Nomos, which paid 12.1 billion roubles for a 51 percent stake in BKM in 2010, has been reported to be seeking to raise up to $600 million via a share sale to finance the purchase of the remaining stake when markets improve.
However, Uralsib analysts said they believed Nomos could merge with Otkritie 'in a way that would avoid putting immediate pressure on its capital.'
As of the end of the first quarter, privately-owned Nomos remained well-capitalised with a Tier 1 capital adequacy ratio at 12.8 percent.
HARD TO GET SCALE
Over 50 percent of Russia's local banking system's assets are state controlled. That has led some private players to seek deals to increase their weight domestically, where overall assets are equivalent to around 76 percent of Russia's gross domestic product.
It has proven difficult, however, to achieve scale.
The 2008 deal between MDM and Ursa bank was aimed at creating one of the largest privately-owned lenders in Russia.
But the merged MDM Bank is now only No.16 by assets, as its key shareholders Igor Kim and Sergei Popov failed to agree on strategy. Kim sold his 11-percent stake in MDM last year and bought Barclays' local retail unit.
Gleb Shpilevoy, a Vienna-based analyst with Raiffeisen Bank International, said Nomos had a track record as a sector consolidator and its 'marriage' with BKM was a successful one.
'If Nomos acquires Otkritie, I think Nomos will require fresh capital, if the deal is to be carried out from its balance sheet,' said Shpilevoy. 'In my view, this format of the deal implies lower integration risks,' he said.
'I think the option when both banks merge entails more integration risks, as we have seen in the case of MDM/URSA.'
Nomos' Moscow-traded shares were down 0.7 percent by 1100 GMT, lagging the overall MICEX index which was up 0.9 percent.
Otkritie Bank is majority-owned by Otkritie Financial Corp, which is owned by its directors, VTB and minority shareholder Anatoly Chubais, the architect of Russia's post-Soviet privatisations.
The Deposit Insurance Agency, Russia's equivalent of the U.S. Federal Deposit Insurance Corporation, also owns 24 percent of Otkritie and would be likely to seek a buyer for its stake, say analysts. The International Finance Corp. owns 14 percent.
Nomos bank is part-owned by Czech private equity firm PPF. Russian businessman Alexander Nesis, who also owns a stake in Polymetal, is also a shareholder.
(Writing by Katya Golubkova; Editing by Megan Davies and Mark Potter) Keywords: RUSSIA BANKS/MERGER
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