Russia Said to Keep Sanctioned Lenders Off Long-Term Dollars

  • Sberbank, VTB, Gazprombank among lenders affected by move
  • Officials in Moscow seek to shield state funds from sanctions

Russian banks are finding little help at home from the toughest sanctions imposed against their country since the Soviet era as officials seek to avoid cash moving through foreign markets being seized.

The central bank and the Finance Ministry have curbed the access of the nation’s biggest banks to dollars in line with restrictions levied by the U.S. and the European Union, according to three officials and a bank executive with knowledge of the matter. As a result, VTB Group, Sberbank PJSC and other penalized lenders have been kept away from the central bank’s 12-month foreign-currency facility, an emergency measure designed to help with external debt payments, the people said, asking not to be identified because the measure, introduced in December, was never made public.

The move highlights the depth and breadth of the economic disruption wrought by the sanctions levied over the conflict in Ukraine. The measures combined with plunging crude prices tipped Russia into its first recession since 2009 as consumer demand collapsed and the ruble lost almost half its value. The steps, while stripping the central bank of its role as lender of last resort and raising financing costs for the nation’s largest lenders, reflect efforts to shield state funds amid the tensest standoff against the U.S. and Europe since the Cold War.

The Bank of Russia is playing it safe because the dollars it provides to domestic lenders under a refinancing program still pass through correspondent accounts in the U.S. and could be seized, two of the people said. While the central bank is now limiting foreign-currency funding to 28 days, policy makers won’t extend any money to the sanctioned lenders beyond the 30-day limit imposed by the U.S. and the EU even if the need arises, one of the people said. 

‘Stress Scenario’

The ministry avoided placing longer-term foreign-currency deposits with the banks at auctions run by the treasury, they said.

The result is that the lenders that account for about 60 percent the Russian banking market are left exposed to a potential new bout of market turmoil and their rising financing costs raise the risk of losing out on deals that require dollar or euro funding. They have virtually no access even to medium-term capital, except for deposits from companies and households.

The financing “may become necessary again in a stress scenario, if oil falls to $30-$40 a barrel and there’s a sharp outflow of capital,” Oleg Kouzmin, chief economist in Moscow at Renaissance Capital, said by phone. “The central bank may support the equity of sanctioned banks and they can buy foreign currency on the market, which will affect the ruble rate, or they can use their foreign assets in case of an emergency.”

In December, executives from sanctioned lenders, including Gazprombank JSC, Bank Rossiya and SMP Bank, met with central bank and Finance Ministry officials and agreed to borrow funds with maturities of no longer than 28 days, one of the people said.

Stock Slump

The premium investors pay to hold Sberbank’s five-year credit default swaps over those of Russia’s government more than doubled from August to 94 basis points, according to data compiled by Bloomberg. The seven-stock Micex Financials Index has posted declines in July-September after having risen in eight of the previous nine months.

The Bank of Russia doesn’t disclose information on individual lenders participating in its liquidity tenders. It now conducts seven- and 28-day auctions to provide foreign currency to banks that meet certain criteria, the central bank’s press service said without elaborating. The Finance Ministry didn’t respond to a request for comment. Sberbank’s press office declined to comment on “hypothetical scenarios,” while VTB’s press office said “it doesn’t have and never had problems with FX liquidity.”

The country’s largest banks say they are coping fine. Lenders have excess dollars and euros as ruble volatility kept borrowers from borrowing in foreign currencies and pushed many depositors to transfer their savings out of the ruble, Oleg Gorlinsky, head of VTB’s treasury, said in an interview.

‘Huge Inflow’

Sberbank raised interest rates on foreign-currency deposits, which prompted “a huge inflow," Maxim Poletaev, the lender’s first deputy chief executive, said in August. “We haven’t had any issues with foreign currency for a long time,” he said.

The monetary authority raised its key interest rate to 17 percent from 10.5 percent in a single step in December to stem a ruble collapse, while offering liquidity to help stabilize the financial industry. The currency’s slide was in part triggered by the sanctions enacted over President Vladimir Putin’s actions in Ukraine.

The Bank of Russia stopped providing 12-month funding through repurchase agreements in dollars and euros in May after domestic companies passed the peak of external debt repayments for this year and the ruble rallied against the dollar. The Russian currency has stabilized since mid-September after a renewed bout of weakness last summer.

Central bank Governor Elvira Nabiullina said on Sept. 11 she was ready to resume support measures introduced last year when the ruble was in a free fall and the crisis in Ukraine was deepening.

Demand for currency was the main reason for a foreign-exchange deficit at the biggest banks in the wake of the ruble’s crisis late last year, according to Fitch Ratings analyst Anton Lopatin. In addition to changing rubles into dollars, many people also pulled money out of the banks to store in safe-deposit boxes, at home or for transfers abroad, Sberbank Chief Financial Officer Alexander Morozov said earlier this year.

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