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20 Aug, 2010 08:23

Russian banks return to global debt markets

Russia's banks are increasingly sourcing funds internationally, with global investors buying higher yielding Russian debt, and far more confident about Russian banks than they were 2 years ago.

At the beginning of 2009 Russian banks were paying high interest rates to borrow money on the international markets, to offset perceived risk in the sector. Within a year confidence in the sector was battered by a surge in low deposit rates, weak lending, and a surge in non-performing loans, as the economic downturn bit.

Just 18 months later the situation has changed according to Renaissance Capital analyst Maksim Raskosnov.

“What we are seeing now is the economy recovering and all sort of business activity picking up. This is why the corporate showing some demand for new credit.”

Corporate lending remains subdued, although showing some improvement since the start of the year. That in turn means that banks aren’t lending out the deposits they are getting, pushing deposit levels to long term highs and encouraging some banks to even deter depositors.

But the upside is that low global interest rates, and high liquidity levels at home means that international debt is in vogue. A spate of bond issues in the first half, by major Russian banks – including Sberbank, Gazprombank, VTB, and Bank of Moscow – seen more than $8 billion in debt successfully placed. They are in favour because with global rates at exceptionally low levels, Russian debt has a significant yield advantage.

Banks have accounted for 65% of total corporate international debt sales from Russia this year, up from 20% last year. But Andrey Donskikh Deputy Chairman of board at Sberbank, says there is some way to go.

“What we are seeing now are only the first steps towards the Eurobond market after the crisis. The market has changed, but it's not like it was back in summer 2008.”

Russian banks are also experiencing renewed public confidence. At the height of the global financial crisis there were genuine fears for the sector and in particularly its funding model. But, with government liquidity support, it has largely held firm through both the global financial crisis and its after effect.