Russia's Banks Are Gasp! Lending Money
Two years ago, Russian entrepreneur Andrei Sakharov, 35, couldn't get a bank loan for more than a six-month term. In January, his 200-employee bakery and cafe outside Moscow landed a $128,000, two-year loan from nearby Probusinessbank. Now, Sakharov is well on the way to opening two new production lines for his 65 varieties of cakes, pastries, and buns. "We never got long money like this before," he declares.
Russia's battered banking system is showing the first signs of a recovery. A year and a half after the country's financial crisis, banks have begun to do something most never did before--give longer-term loans to small and midsize businesses. Borrowers in industries from food production and dishware to autos and ski resorts are finding capital available from a growing number of lenders. Such loans are helping to revive Russia's economy. After plunging more than 4% in 1998--part of a 37% drop in gross domestic product since the fall of the Soviet Union in December, 1991--Russia's GDP grew 3.2% in 1999. This year it's expected to rise 1.5%.
LOWER INFLATION. For most of the 1990s, Russian businesses were starved for cash. Banks had little incentive to make risky business loans when they could earn easy profits from currency trading and high-yielding Treasury bills. Triple-digit inflation also discouraged banks from lending long. But now annual inflation is down to 25%, and the government expects to end the year with an average of 18%. Loans to borrowers are generating higher returns than investments in government bonds. A three-month Treasury bill, sold in February for the first time since Russia defaulted in August, 1998, yielded an annualized 20%. Most banks say they are lending for three months in rubles at an annualized rate of between 30% and 40%.
Lured by such returns, many Russian banks are stepping up lending. Sberbank, the state-controlled savings bank, says its loan portfolio more than doubled in value last year, topping $5.8 billion on Jan. 1. The bank, Russia's biggest lender, used to target government agencies and big commodity companies. Now its priority is to lend to midsize businesses. Alfa Bank, which has emerged from the crisis as one of the largest private banks in the country, has expanded its loan portfolio from $250 million in early 1999 to about $400 million this year. "In terms of commercial banking, [corporate lending] is one of the most dynamic ways to earn money," says Alexander Silvestrov, head of the loan department at Alfa.
It's not just domestic banks that sense big opportunities in Russia. Some foreign banks have begun to test the waters, tantalized by Russia's population of 147 million. Russian subsidiaries of two Austrian banks, Bank Austria and Raiffeisenbank, have opened retail branches in Moscow. ING Barings and South Africa's Standard Bank London Ltd. arranged syndicated loans for Siberian metal company Norilsk Nickel and steel producer Severstal.
MATTRESS STASH. Despite signs of health, Russia's banking system is still in fragile condition. Total assets have doubled to $50 billion since the August, 1998, crisis, but the amount is tiny compared with the U.S. Few Russian citizens trust banks enough to deposit savings on a large scale, afraid of bank and currency collapses. Analysts estimate Russians keep between $30 billion and $40 billion in savings under mattresses and out of banks. Central bank regulation of the industry is poor, and banks have little experience in credit analysis.
Nevertheless, Russia is slowly making its way back to international markets. Alfa Bank plans to seek money abroad late this year or early next year--the first Russian bank since the crisis to try to tap foreign capital markets. And the government plans to issue a Eurobond next year for the first time since 1998. With the government's massive domestic debt burden restructured and production on the rise, Russian banks and businesses may be on the road to recovery. As he expands his Moscow bakery, Andrei Sakharov certainly thinks so.