Russia’s banking system is experiencing “some panic” after oil slumped, according to Sergey Dubinin, chairman of VTB Bank, Russia’s second-largest lender.
The free-floating ruble and higher central bank interest rates are a “bad combination” for the Russian economy, he told delegates at a conference in London today. Even though they’re “painful” actions, policy makers don’t have any choice in the current circumstances after the currency plunged, he said.
Russia’s biggest state-run banks are suffering a plunge in profits, forcing some to seek government help, after the U.S. and European Union hit them with sanctions over the conflict in Ukraine and the ruble dropped the most in emerging markets. OAO Sberbank, Russia’s biggest lender, cut its 2014 profit forecast on Nov. 26, while VTB Group eliminated more than a third of its staff in Europe in the third quarter and sought state support to replenish capital.
“Economists for such a long time convinced everyone that with the decrease in oil price we will enter this difficult social and economic crisis, so when it started to happen, then some panic including in banking sector became obvious,” Dubinin said.
The Russian government will invest 39.95 billion rubles in OAO Gazprombank preferred shares from the National Wellbeing Fund, according to a decree signed by Prime Minister Dmitry Medvedev on Nov. 27, published today.
VTB, which converted a more than 200 billion-ruble ($3.8 billion) subordinated loan from the government into preferred shares to boost capital, asked for additional state support of 250 billion rubles, Finance Minister Anton Siluanov said last week. The loan has not yet been approved and a decision will probably come by year end, Dubinin said today.
VTB’s charge for bad debts almost tripled in the third quarter to 65 billion rubles from 22.1 billion rubles a year earlier, the bank said Nov. 20. Losses linked to the Ukraine crisis were 37 billion rubles in the first nine months of 2014. VTB shares have fallen 40 percent in London this year, and traded 0.2 percent higher at 4.7 kopeks at 5:11 p.m. in Moscow. Sberbank dropped 53 percent this year.
Brent crude fell 38 percent since reaching this year’s high on June 19 and touched a five-year low of $67.53 a barrel yesterday. The ruble weakened 38 percent against the dollar in 2014.
“We will get through this situation,” Dubinin said of Russian banks. “Stabilization will happen, but unfortunately at those levels that will be unlikely to be favorable for the Russian banking system,” he said, referring to the oil price.
Russia has been targeted by U.S. and EU sanctions, with the penalties curbing access to global capital markets and stoking outflows. Putin denies involvement in the unrest, which began after he annexed the Black Sea peninsula of Crimea in March.
Russian gross domestic product may shrink 0.8 percent next year, compared with an earlier estimate of 1.2 percent growth, Deputy Economy Minister Alexei Vedev told reporters in Moscow today.
As economic ties with the EU deteriorate, President Vladimir Putin yesterday said Russia scrapped a proposed $45 billion Black Sea pipeline to carry gas to Europe by bypassing Ukraine.
Dubinin was speaking at a Russian banking conference organized by Adam Smith Conferences.