Bank IPOs: Upcoming Listings in the Banking Sector and Regulatory Risks
A New Wave of Bank Listings on the Horizon
IPO Candidates
The Russian banking sector is gearing up for a fresh wave of public listings following an extended period of geopolitical turbulence and sanctions pressure. Inside the halls of the Moscow Exchange and the offices of investment bankers, the names of potential IPO candidates are becoming increasingly common: Sovcombank, MKB, Rosbank, and Bank Otkritie. Each of these players possesses the critical mass necessary for a public offering—capitalisation exceeding ₽100 billion, a diversified business model, and ambitions to fortify their positions amid fierce competition from technological giants and state monopolies.
The prospect of entering the stock market is also being considered by several regional banks aiming to expand their geographical reach and attract capital for digital transformations. Regional players view IPOs as a means to strengthen market trust and access inexpensive funding without significantly increasing their debt burden.
Motivations for Going Public
The motivations for public listings among banks are multifaceted and extend beyond mere capital attraction. Sovcombank is actively expanding its retail operations through aggressive credit expansion and requires additional Tier 1 capital to meet regulatory standards while maintaining growth rates. MKB, traditionally strong in corporate lending, sees the IPO as a means to diversify its funding sources and reduce dependence on costly subordinated loans. Following its restructuring, Rosbank views a public listing as the final touch in its transformation into a technology-driven bank of European calibre.
Another motivation is to enhance image and transparency: a public bank is obliged to adhere to stringent disclosure requirements, which bolsters trust among institutional investors and allows for the planning of long-term projects, attracting partners and international development institutions.
Preparing for an IPO
The preparation for an IPO for a credit institution is a marathon lasting from 12 to 24 months. The bank must align its financial statements according to IFRS with an unqualified audit opinion, establish a corporate governance system with independent directors, risk and audit committees, and present a transparent ownership structure devoid of offshore schemes. Any doubts regarding the sources of capital or compliance violations can jeopardise listing plans.
A key stage in this process is the absence of significant litigation and conflicts regarding ownership and management. Investors and regulators pay close attention to corporate disputes and suspicions of financial malfeasance or sabotage, as these factors directly influence the perception of the bank as a reliable issuer.
Timing and Macroeconomic Conditions
The selection of a timing window for the listing is critically important. Bank IPOs are sensitive to macroeconomic conditions: with the central bank's key rate at 16-21%, investors prefer risk-free instruments, often ignoring volatile stocks. The ideal conditions are characterised by a stable or declining rate in the range of 7-10%, a growing market, low volatility, positive lending dynamics, and absence of geopolitical shocks.
Moreover, the month and day of the listing can also play a role: spring and autumn periods are traditionally seen as more favourable due to higher market liquidity, while summer seasons and holidays lead to diminished investor interest.
The Regulatory Maze and Oversight Requirements
The Role of the Central Bank
The Central Bank of Russia acts as an invisible yet powerful stakeholder in any banking IPO through mechanisms of licensing and ongoing supervision. Formally, the Central Bank does not approve listings; however, de facto, any large credit institution coordinates its plans with it and secures informal ‘blessing’. The regulator may request additional reports, stress tests or capitalisation plans, delaying or adjusting the timetable for the listing.
Basel Standards and Regulatory Requirements
Basel III and IV set global capital requirements for banks. In Russia, the capital adequacy ratio (N1) is set at 8% for ordinary banks and 10% for systemically important banks. For an IPO, a buffer of 12-15% is necessary to ensure portfolio growth and dividend payments without risking regulatory breaches. The regulator scrutinises the calculation of buffers and the conditions of transitional periods for implementing new standards.
Capital Structure
A bank's capital consists of Tier 1 capital, additional Tier 1 (preferred shares, perpetual subordinated bonds), and Tier 2 capital (subordinated loans, reserves). An IPO enables the accumulation of higher-quality Tier 1 capital, strengthening financial stability. The capital structure is analysed taking into account the potential conversion of preferred shares and limits on coupon payments.
Stress Tests and Compliance
Prior to an IPO, banks undergo stress tests conducted by the Central Bank, modelling economic shocks, GDP declines, rising defaults, and deposit outflows. The results are disclosed to investors and influence capital buffer requirements. Furthermore, AML systems and sanctions compliance must demonstrate the absence of connections to suspicious transactions and circumventions of sanctions.
Additionally, the regulator evaluates cybersecurity measures and the bank’s preparedness against digital attacks, including potential system outages or customer data breaches during the IPO preparation period.
The Art of Banking Valuation: Multiples and Metrics
P/B Ratio
The P/B (Price-to-Book) ratio—representing the market value relative to the book value of capital—is a fundamental indicator for banks. In Russia, banks trade within the range of 0.5-1.5x, reflecting modest profitability and associated portfolio risks. When assessing valuations, it’s crucial to consider the impact of provisioning and asset quality on book value.
ROE Profitability
ROE (Return on Equity) illustrates profit relative to equity. For Russian banks, a comfortable level is 15-25%, achieved through net interest margins at rates of 7-10%. Investors take into account the ROE trend over several years and its resilience against crises.
An examination of ROE by segments (corporate lending, retail, investment banking) assists in understanding profit drivers and business concentration risks.
Portfolio Quality and NPL
NPL (Non-Performing Loans) refers to the share of loans overdue by more than 90 days. A norm of 3-7% exists, while exceeding 10% signals potential problems. Cost of Risk—provisioning as a percentage of the portfolio—should ideally be between 1-2%. It's important to grasp the dynamics across portfolio branches, as corporate NPL often differs from retail NPL.
Additional Metrics
Other indicators include the cost-to-income ratio, the ratio of net commission income to operating expenses, liquidity indicators LCR and NSFR, efficiency in managing interest risk through gap analysis, and the size of the net position in foreign currency operations.
Lessons from History: Triumphs and Catastrophes
VTB's People’s IPO 2007
May 2007: Listing price set at ₽0.136 per share, valuation at $24.5 billion with a P/B of 2.5x. Investors lost 80-85% of their capital by the end of 2008. Reasons included overvaluation, poorly timed entry ahead of the crisis, and aggressive marketing without risk disclosure. This case serves as a warning to retail investors: participating in an IPO without analysing fundamental indicators and macroeconomic context can lead to financial disaster.
Success of Tinkoff 2013/2020
IPO on the LSE in 2013 at $17.50, valuation at $850 million, P/B at 1.5x. By 2021, shares surpassed $90, delivering a fivefold increase. A follow-up offering in 2020 on the Moscow Exchange financed the bank’s ecosystem and affirmed market trust. The keys to success were a transparent online model, clear growth drivers, a strong founder, and later expansion into non-banking services.
Life After IPO: Regulatory Challenges
New Obligations
A public bank is subject to dual oversight: the Central Bank regulates credit norms, while the securities market regulator enforces standards for corporate governance and the disclosure of significant information. This increases operational costs related to compliance and investor relations.
The Risk of Regulatory Breaches
If the N1 drops below 8%, the Central Bank imposes restrictions: prohibiting new deposits from individuals, dividends, and requiring a recovery plan. For a public bank, regulatory breaches result in reputational damage and a sharp decline in share prices.
Dividends and Sanctions
In 2022-2023, the Central Bank capped dividends at 50% of profits, disappointing investors. Sanctions have complicated access to foreign markets, strained correspondent relationships, and affected the bank's valuation abroad.
The Fintech Revolution and Competitive Challenges
Digital Competition
Fintech startups employing cloud technologies and AI are reducing costs and enhancing the user experience, pushing traditional banks to modernise or risk losing clients. Investment in IT and partnerships with technology companies have become critical for maintaining market share.
Cost-to-Income
The cost-to-income ratio reflects operational expenses relative to income. Digital banks boast ratios of 30-40%, while traditional banks range from 50-70%. Each percentage point impacts margins and the ability to offer competitive rates to clients and invest in innovations.
Systemic Approach
Super-applications (Sber, Tinkoff) combine banking, retail, delivery, streaming, and healthcare. For an IPO, it is essential to present a functioning ecosystem with real users and monetisation, rather than merely marketing promises.
Practical Navigation for Investors
A Basic Checklist
Check the P/B ratio against the sector average, ROE resilience, portfolio quality (NPL, Cost of Risk), capital buffer (N1 +3-5 pp), business diversification, IT infrastructure, and management reputation. Only a comprehensive analysis of all factors offers a chance for a substantiated investment decision.
Alternative Strategies
Consider purchasing shares on the secondary market after the initial euphoria subsides, investing in bank bonds, or sector ETFs. Statistics show that 60-70% of IPOs trade below their issue price after a year, making patient waiting a rational strategy.
Key Principle
Avoiding hype is crucial: it is better to miss ten dubious listings than to invest in one clearly overvalued opportunity. Discipline, deep analysis, and readiness to wait are the hallmarks of a successful banking investor.
