Ben Aris writes from Moscos: Five of Russia’s six largest banks are now on the US sanctions list, which is hurting the whole sector and could eventually precipitate another financial crisis.
Russia’s largest lender, the savings bank Sberbank, was included in a new sanctions list for the first time in September. It joins its sister state-owned banks VTB, which concentrates on corporate financing; the retail specialist VTB24; Gazprom-owned Gazprombank; Bank Moskvy, which was acquired from the City of Moscow in 2011 by the VTB Group; and Russian Agriculture Bank (Rosselkhozbank), which finances the agricultural sector.
Sanctions are being imposed an already extremely sick sector and will only add to the deterioration. Cut off from international capital markets and an economic malaise at home depressing retail deposit growth, the sector is currently being supported by the Central Bank of Russia (CBR). Lending by the CBR is approaching levels last seen during the blackest days of the 2008-09 crisis. The government has already been forced to recapitalise two state-owned banks – VTB and Russian Agriculture Bank – and is pouring more money into the sector.
A recent report from Standard & Poor’s says that Russian banks have sufficient resources to weather the storm for now. “We believe that the credit quality of Russian banks will not suffer immediately from the restrictions on tapping EU and capital markets. Our analysis suggests the sector has enough liquidity to refinance its international debt falling due until the end of 2015,” the rating agency says in a September 18 report entitled, “Sanctions Will Increasingly Weigh On Russian Banks’ Funding And Liquidity Profiles.”
However, it adds that, “the longer restrictions on capital market access last, the larger funding imbalances will become, potentially calling into question the banks’ capacity to adequately finance the economy.”
While the list of sanctioned banks is short, they still represent more than half of all Russia’s banking assets. Luckily, following the 2008 crisis Russian banks became a lot more cautious in their borrowing and are not heavily exposed to international lenders. S&P estimate that banks total external obligations for the 2014-15 is $57bn, which they should be able to cover from their liquid reserves and maybe with some help from the CBR.
