Russian banks in the first half of 2008

CB fights inflation: increased re-financing rates and norms of mandatory reserves, approved in February, gave a start to more rigorous monetary policy. CB managed to hold proper balance between fight against inflation and banking system stability. To control growing monetary mass and curb inflation, CB introduced a powerful instrument of mandatory reserves. Increase of 5 percentage points within less than a year (October 2007 - September 2008) related to liabilities of credit organizations to non-resident banks.

Corporate crediting in good shape so far: mid-sized enterprises are ready to take credits even for higher rates. Despite rigorous monetary policy and deceleration of resource base, the first half of 2008 saw increased growth of credits to non-financial organizations (19.4%) - almost similar to relatively safe first half of 2007. Russian enterprises are aware of necessity of investments for further growth, and bank credits seem to be the only option.

Liabilities are hard to diversify: so far increased rates and promo activity in banks failed to attract continuous individual deposits - grabbing clients from each other seems to be the only result. Legal entities still remain to be main contributors to resource base. Partly those are resources of development institutions, partly pending disbursements, given to clients by way of credits. In the first quarter individual deposits went up by mere 11.9 against 14.6% in the first quarter of 2007. The first quarter failed to attract deposits, the second quarter seemed to level with the past year. Deposits grew up almost in parallel with the resource base - that is why share of private deposits stabilized at 25% of liabilities.

Russian banks sacrifice "cushion of liquidity" expecting to get access to the Bank of Russia credits. To satisfy credit demand, banks cut down excessive reserves on their CB accounts, curtail inter-bank crediting and security operations. The behavior is quite explainable: the CB short-term re-financing system proved its efficiency, and crediting the real sector was the only option for banks to earn some money.