Banks Jockey for Deposits as Dollars Get Costlier: Russia Credit

Russian banks are competing for dollars by raising deposit rates as sanctions force them to turn to companies for foreign currency.

Lenders boosted rates for companies on dollar deposits held more than a year by 118 basis points in August from July to 4.89 percent, the biggest monthly jump this year, the most recent central bank data show. That compares with 3.08 percent, a 10 basis-point increase, for retail rates. Corporate foreign-currency deposits rose 34 percent this year through Aug. 31 from the same period last year to the equivalent of 2.8 trillion rubles ($69 billion).

Russian companies are facing a cash crunch as they search for ways to meet $55 billion of debt maturities through December, according to central bank estimates. They have been unable to raise money abroad since the U.S. and European Union imposed sanctions for Russia’s support of Ukraine separatists. Alfa Bank, the nation’s largest private lender, said foreign-currency deposits from companies surged 81 percent in the third quarter from a year earlier as it “actively” sought funds “amid a crisis in foreign-currency liquidity.”

“The shortage of foreign-currency liquidity is pushing banks to hike deposit rates to address their refinancing needs and those of their clients,” Olga Naydenova, a senior financial-services analyst at BCS Financial Group, said by phone from Moscow yesterday. “Raising rates is the way to compete for it, especially at times when foreign capital markets are practically closed.”

Sanctions Impact

The U.S. and EU have targeted individuals, companies and the finance, energy and defense industries to punish Russia for the annexation of Crimea in March and President Vladimir Putin’s alleged support for the separatist insurgency in eastern Ukraine.

The Treasury Department imposed sanctions that prohibit transactions in, provision of financing for, or other dealings in new debt of greater than 90 days’ maturity for a range of companies. For banks, the debt financing restriction covers maturities greater than 30 days.

The central bank is seeking to help alleviate the dearth of liquidity and counter the ruble’s weakness. It has set a ceiling of $50 billion for a string of planned foreign-currency repurchase agreements that will run through the end of 2016, Bank of Russia said in a statement Oct. 16.

The ruble weakened 0.2 percent to 41.028 per dollar at 3:25 p.m. in Moscow today.

‘Timing Mismatch’

The biggest banks have a buffer to meet short-term foreign-debt payments, the central bank said yesterday.

“The problem of refinancing external debt is not of a systemic nature,” the bank said after conducting a poll of the 30 largest lenders in September.

The liquid foreign currency-denominated assets of the 30 largest Russian lenders exceeds their liabilities this quarter and in 2015 by $32 billion, the central bank said in a financial stability report published on its website. Some 70 percent of the banks’ total $192 billion of external debt is denominated in dollars, according to the report.

The “solid liquidity of most rated Russian non-financial corporates will enable them to meet the total $100 billion of debt maturities due by end-2015,” Moody’s Investors Service said in a statement today. Still, “tighter restrictions might exacerbate short-term liquidity needs” for some companies, Moody’s said.

‘Alternative Sources’

“The central bank is taking some steps but banks are looking for alternative sources,” Natalia Berezina, a banking analyst at UralSib Capital, said by phone from Moscow yesterday. “The deposit rates may increase further as sanctions are unlikely to be lifted in the near future.” Moscow-based Alfa Bank increased rates for corporate deposits under 3 months to 0.8-2 percent in October from 0.3-0.75 percent in July, the lender’s press service said. Rates for one-year deposits rose to 4-4.25 percent from 1.75-2 percent over the same period. The volume of foreign-currency deposits rose 25 percent to 310.7 billion rubles in the third quarter, mainly from companies in the finance, oil and state sectors, it said.

OAO Promsvyazbank, the third-biggest non-state bank, saw interest rates on foreign-currency deposits almost double since the end of last year, the lender’s press service said without giving further details.

Deposits at state-controlled OAO Sberbank, Russia’s largest lender, rose 5 percent, or the equivalent of $1.2 billion, in the third quarter from the previous three months, the bank’s press service said.

“Corporates are stashing foreign currency, preparing for upcoming external-debt repayments,” Tatiana Orlova, an economist at Royal Bank of Scotland Plc in London, said by e-mail yesterday. “They can’t refinance in Eurobond markets and the hope for a quick lifting of the Western sanctions, which have led to the borrowing-market shutdown, is quite slim at the moment.”

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