Translated material
Who benefits from the deficit?
Fitch Ratings believes that the liquidity crisis will affect banks differently
“ The turmoil in the United States has had an impact on Russia’s financial condition,” admitted the first deputy chairman of the Central Bank, Gennady Melikyan, last week. The possible consequences of the crisis for our banks were also analyzed by the international agency Fitch Ratings. According to the report “Russian Banking Sector: Changing Liquidity Situation and Funding Structure,” Russian banks remain vulnerable if problems arise in raising funds. With a global liquidity crisis, many banks will have nowhere to borrow money cheaply, which could cause problems for their business. This, in turn, will cause distrust among depositors who, as in any crisis, will begin to transfer their deposits to state banks. True, Fitch does not expect a repeat of the history of 2004 on an international scale, when a crisis of confidence occurred in the Russian banking system, so the forecasts for the ratings of the Russian banking system will remain unchanged for now. The fundamental difference in today’s situation is that the Central Bank itself has now become a good “safety cushion”. Its reserves have increased fivefold since 2004, making it easier for banks to provide the funds they need.In Fitch's view, Russian credit institutions will respond differently to the reduced ability to raise funds on a global scale. “In recent years, many Russian banks have increased the amount of funds they raise in international capital markets,” said Inessa Tolokonnikova, associate director in Fitch's Financial Institutions Research Group. They have successfully taken advantage of the interest of international investors in our market and their abundance of funds. Foreign borrowings increased from 15% of total bank debt in 2003 to 23% (RUB 3.4 trillion) as of June 1 this year. Having started the first securitization transactions in 2005, by August 1, 2007, Russian banks increased their volume to $4.8 billion.
Most foreign loans are long-term in nature. According to Fitch's calculations, banks of the first group (which includes banks with state participation - Sberbank, VTB, Gazprombank, Bank of Moscow, Agroprombank, Ak Bars) have $2 billion in foreign borrowings (Eurobonds and securities under credit securitizations) with repayment by the end of 2007, $5.9 billion - with repayment by the end of 2008, $4.6 billion - by the end of 2009, $3.5 billion - by the end of 2010 and $9 billion due later than 2010. The banks of the second group are not far behind them (large private banks - Alfa Bank, Russian Standard, Rosbank, MDM Bank, Promsvyazbank, Nomos Bank, Zenit, Petrocommerce, URSA). By the end of this year they must repay foreign loans worth $1.6 billion, by the end of 2008 - by $4.3 billion, by the end of 2009 - almost $4 billion, in 2010 - - $2.6 billion and after 2010 - $8.1 billion.
“In most cases, refinancing risk is within acceptable limits in the short term, but the accompanying increase in risk premiums will reduce the ability of Russian banks to raise funds in these markets and lead to higher funding costs, which they will find difficult to pass on to clients,” continues Mr. Ms. Tolokonnikova. It’s hard to disagree with this: Russian banks already have examples of not entirely successful securitizations and postponement of Eurobond placements to a later date. For now, syndications are saving the day, but their volume and cost will depend on how long the global crisis of confidence drags on and the need for the banking community to cover the costs of failures with mortgage securities.
A lack of funds may not have the best consequences for business development and bank profits, which means that corporate and private clients may begin to worry. Fears of private or corporate depositors, as a rule, lead to a flow of funds to banks with state participation, one of which already remains the leader in terms of the volume of household deposits. So far, the global crisis has not affected the sentiment of private depositors towards our banks - the volume of deposits from May to July grew at the usual pace for the summer (in May and June 2006, private deposits in the 30 largest banks increased by 1.6 and 3.2, respectively %; the same indicators were in the same period of this year), and according to the results of the first quarter, the growth rate even increased.
There are no Central Bank data for July and August, as well as the second quarter, yet, but bankers do not expect major changes - the traditionally low summer activity will have an impact, and there are no obvious signs of another “Black Tuesday” or the August crisis. And yet, one can feel the anxiety of private depositors: will everything be all right with our banks? This is even evidenced by the questions that people recently asked Deputy General Director of the Deposit Insurance Agency Andrei Melnikov during a broadcast on the Mayak radio station. For example, they asked: “Why did several large banks announce reductions in deposit rates last week? This is not the first time this year that rates have been reduced. Is this the beginning of a crisis? And the presenter’s question about the recent increase in the dollar/ruble exchange rate sounded like this: “If the dollar starts to rapidly rise in price, people will not be able to repay dollar loans, and the banks that issued these loans will begin to go bankrupt? This is pretty much what’s happening in the United States now.”
The situation with trust in banks and local currency can change in a matter of days, as it happened in Kazakhstan. Local banks, which have been much more active in the international market than ours, are experiencing an acute shortage of funds. Now dollars are being bought on the domestic Kazakh market by both local banks and those foreign investors who are withdrawing funds from the country to plug holes in their balance sheets. As a result, the dollar/tenge exchange rate increased significantly. The National Bank of Kazakhstan is using foreign exchange injections to keep the exchange rate from sharp fluctuations. Meanwhile, the population began to buy currency. “There is now a large outflow of cash: the population is buying mainly dollars, euros in smaller quantities. This also puts pressure on the tenge,” Reuters quotes a dealer at Kazakhstan’s Alliance Bank.
Noting that so far there has been no panic among depositors in Russia, Fitch still warns that banks may survive a possible crisis of confidence and liquidity in different ways. “If problems arise with trust in the banking system, the desire of clients to increase the reliability of investments can have a positive impact on state-owned credit institutions,” experts say. But private banks, even large ones, will have a harder time: they are, of course, less vulnerable than they were in 2004 (the diversification of clients and sources of capital had an impact), but they are too keen on international financing, which can “lead to an increase in refinancing risks in the event of a decline in interest from foreign investors." Small and medium-sized banks with an underdeveloped customer base are likely to be more exposed to liquidity risk, Fitch concludes. The agency notes that Russia now has a good source of funding in emergency situations - the Central Bank with its reserves of $416 billion. Over the past few days, the regulator has demonstrated to the market its readiness to support banks by issuing overnight loans worth 246 billion rubles within a week.