Expert word

Was there any crisis?

Different parameters of assets and liabilities constitute the main element of vulnerability for banking systems in Russia and CIS. This particular area is visibly fraught with currency, interest and liquidity risks. One of the most important item of liabilities in Russian banks (a chief source of funding for some of them) is credits of non-residents and Eurobonds (15%-20% from balance currency for a number of large and medium-sized banks), as a rule, with a LIBOR-tied floating rate. Turbulence at the financial market is accompanied by a leap of LIBOR and a mighty increase of your debt. Currency fluctuations (passive base nominated in euro or dollars, but credits are placed in rubles) and liquidity problems bring your risks to the top of the scale.

The interbank credit rates have been gone overboard and exceeded 8%. That is what liquidity deficit is about, like in 2004. But there are two serious distinctions between 2004 and the current situation. First, the RF CB has been actively refinancing banks through REPO using sensible rates; second, neither the regulator, nor mass media has been heating the atmosphere with improper statements and “black lists”. Besides, during the hot summer of 2004 the interbank credit rates skyrocketed beyond all decent limits, with the general interbank situation being too nervous for many banks to borrow even with such rates. Zero limits – that was another story. Speedy CB refinancing was required, but in the long run Vneshtorgbank received credits to buy Guta. Anyway, that is all bygones. At that time the main reason was realization of regulative and reputation risks, not just pressed liquidity. Currently the regulator and banks hold the situation under control (at least, so far).

The situation in neighboring Kazakhstan is more of a crunch – the banking system and its regulation has proven to bee pretty vulnerable. Risks were not properly hedged, interest and liquidity risks turned out to be too high due to high dependency from foreign credits. The Kazakhstan banking system has been long “pumping” liquidity from the West to CIS (including Russia ). The share of foreign credits in the liabilities of Kazakhstan banks exceeded 50% - and the financial shock was so untimely. The Kazakhstan National Bank declared the introduction of new minimum reserve demands for fund attracting banks as of October 9. In case of internal borrowings reserves went down from 6% to 5% of the attracted sum. For all other obligations, including those to non-residents, and debt securities the reserve rate went up from 8% to 10%.

And what is going on in Russia? Russian banks still mainly rely on individual deposits (their share is a bit less than one third of all liabilities). Presently the depositors panic and mass withdrawal of deposits are hardly possible. So no obvious reasons for any crisis are in sight. But the issue of irrevocable deposits is on the agenda (for the benefit of depositors, too). As to mortgage problems in Russia or mass non-return of other credits by individuals – there is no reason to be worried. Our current mortgage situation generally looks pretty good with reliable average quality of borrowers and absence of problems with floating and interest rates, the market has been on the rise. Growth of overdue payments has been decelerating (as distinct from the beginning of the year), and it would be too pessimistic to expect non-return of credits due to growing currency rates or problems at the financial markets abroad. West capital-oriented large companies may suffer more, since the cost of their debt has gone upward due to increased rates and liquidity problems. But these companies are strong enough to hold such blows.

Demand for the Russian banks mortgage securities (MBS) may now decline (investors would rather overestimate risks, and not the other way around – as they did in the past following rating agencies' assessments), or may grow (investors, used to such instruments, may move from developed to emerging markets, with risks needing time to accumulate before they may explode the market). At present increased credit rates for general public and companies are highly unlikely. If banks keep on having liquidity problems, some other temporary measures may be taken, like credit limits or serious suspension of activity. To increase rates you need higher cost of resources in mid-term perspective. But so far we observe only short-term leaps, and rates may get back to normal pretty soon.

But if the market ambiguity and high stakes prevail for a long time (a month or more), mid-term credit rates would definitely grow – in line with the market.

Banks with liquidity gaps and limited access to refinancing may find themselves at risk. They are mostly average and small size banks, but almost none of them do retail. Again, the current situation is in a way remindful of that of 2004, but there are principal distinctions making panicky attitudes unreasonable; the more so with the current system of deposit insurance. So far there is no point in increasing deposit rates , since individual deposits were one of the most expensive ways of financing – deposit interests may only grow by the end of the year, if bond yield and credit rates show upward trend. And even then it would be rather a marketing ploy, and not an instrument for realistic extension of resource base to deal with liquidity problems. But liquidity crises are usually short-termed and not fundamental – therefore this kind of scenario does not look likely.

Pavel Samiev, director of financial institutions ratings department