Russian lenders say plans to withdraw emergency liquidity this year may shackle credit and confound government efforts to push banks to lend more.
Europe’s sovereign debt crisis means support for the financial industry must stay in place longer than planned to give Russia a buffer against capital flight, according to the country’s bankers’ association, as well as Russia’s third- biggest private bank, OAO Promsvyazbank, and rating service Standard & Poor’s.
“Our financial market isn’t very large and obviously, a worsening of the situation in Europe may spook investors,” said Anatoly Aksakov, head of the Russian Association of Regional Banks. “A fairly large outflow of liquidity may suddenly leave the market completely uncovered.”
The central bank said in March it wants to restore reserve requirements to 2008 levels as it unwinds crisis measures this year. Lenders may lose their safety net as they try to reduce problem loans, now almost 40 percent of assets, leaving the financial system “constrained,” S&P says. A clampdown on credit may derail Russia’s recovery from its deepest recession since 1991, bankers say.
“The banking system must remain in a state of red alert,” said Alexandra Volchenko, senior vice president at Promsvyazbank. “External markets remain the main source of danger for the banking system.” Any steps toward trimming emergency programs would “look premature.”
The regulator will probably tighten reserve requirements from July 1, returning to the pre-crisis standard for classifying problem loans, Mikhail Sukhov, a central bank board member and head of the licensing department, said last week.
“The market itself must adapt to working under normal conditions,” Sukhov said. “It’s absolutely clear that a number of these measures are becoming less necessary.”
Shares in Russia’s biggest bank, Sberbank, have fallen 15 percent in the past month, while VTB Bank OJSC, the second largest, is down 11 percent. The benchmark Micex index has dropped 13 percent in the period.
Lending grew 0.9 percent last month as corporate and retail loans showed gains, according to the central bank, the first time both portfolios increased since January 2009. Retail lending shrank 11 percent last year, after climbing 35 percent in 2008. Loans to companies advanced 0.3 percent in 2009 compared with growth of 34 percent in 2008.
Lending is still at a “low” level, according to central bank Chairman Sergei Ignatiev, who has predicted loan growth of 15 percent this year. Prime Minister Vladimir Putin on April 9 said he had hoped lenders would react more “promptly” after the 13 cuts in interest rates in as many months, bringing the benchmark rate to a record-low 8 percent.
Lenders’ reserves surpass 2 trillion rubles ($67.88 billion), compared with 688 billion rubles a year ago, BDO consulting group in Moscow said on April 8. Investments in Russian central bank bonds account for the largest share of voluntary reserves, or 842.8 billion rubles, it said.
In other BRIC nations -- Brazil, India and China -- central banks have already withdrawn liquidity to avert asset-price inflation. Premier Wen Jiabao raised reserve requirements three times this year. India’s central bank on April 24 increased banks’ cash reserve ratio to 6 percent from 5.75 percent to drain 125 billion rupees ($2.6 billion) from lenders.
At the height of the credit crisis, Bank Rossii was forced to extend 1.9 trillion rubles in unsecured loans to banks, loosen regulations and drain a third of its reserves to slow the ruble’s decline. Investors and companies pulled more than $300 billion from the country between August 2008 and mid-February 2009.
Russia’s international reserves fell $4.8 billion in the week through May 21, the most in four months, to $453.4 billion, the central bank said yesterday.
Existing support measures “are a key factor in providing banking sector stability,” said Ekaterina Trofimova, a bank rating director at Standard & Poor’s in Paris. “Reversing the emergency measures and tightening regulations prematurely would pose a risk.”
Concern the region’s fiscal woes will stall a recovery has sent oil prices lower. Urals crude, Russia’s chief export blend, fell to $68.40 a barrel May 20, the lowest since October 2009. The euro fell to its lowest level against the yen since November 2001 on May 24 and weakened 20 percent against the dollar since a Nov. 25 high.
Bankers say the regulator must watch European markets closely to time any withdrawal of support. European policy makers pledged a loan package worth almost $1 trillion and a program of bond purchases to forestall defaults in the region’s most indebted countries.
Europe’s debt crisis may prompt some governments and regulators to delay withdrawing stimulus measures. German Chancellor Angela Merkel said on May 20 she is “very worried” about the challenges posed by coordinating exit strategies.
Russian central bank chief Ignatiev said he doesn’t think turmoil in Europe “will have a strongly negative effect on the Russian economy.”
The economy is protected by sufficient liquidity, a “much more flexible ruble,” and large international reserves, he said yesterday. The nation’s banking system is “better prepared for external shocks than it was in 2008,” Ignatiev said.
The ruble rose 0.5 percent to 30.6750 per dollar in Moscow, taking its three-day appreciation to 3.1 percent, the most since December 2009. The Russian currency weakened 0.5 percent to 37.9400 versus the euro.
Russia’s central bank is at a “tricky point,” said Raimo Valo, board chairman of the Russian unit of Swedbank AB, the largest Baltic lender.
“You have to support the real sector and if the banks are controlled too tightly, it will of course harm that,” he said. “It’s very crucial that you don’t do too much too early. That might be really harmful for the system.”