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18 Sep, 2007 03:12

Russian banks provide haven from credit storm

The liquidity crunch caused by the mortgage crisis in the United States might have rattled Russia's banking system. But top Russian economists and banking experts say it is a safe haven from the credit storm.

The crisis did have an effect on Russia's banking system, as foreign investors, stung by a higher cost of capital, fled to low risk investments.

But while the inflow of foreign cash has ebbed there’s no threat to the banking system.

“Russian banks have accumulated significant sums of money, not to mention that foreign investments continue to be robust. What more can we ask for?” claimed Evgeny Yasin, the Head of the Higher School of Ecomics in Moscow.

A few weeks ago, the Central Bank had to offer loans to the banking system to offset the outflow of foreign cash. But experts discussing the state of Russia’s banking sector on Monday said that banks should not rely on the regulator for support, but look for ways to refinance their debt on their own.

“The borrowing costs for everyone, including Russian banks, are now higher. Clearly, it is the new reality we all have to get used to,” pointed out Mikhail Zadornov, Board Chairman of VTB 24 Bank.

International borrowing by Russian banks has more than doubled over the past year, reaching $US 110 BLN. But if foreign funds dry up, Russia has no shortage of domestic capital with $US 420 BLN in gold and foreign exchange reserves, the world's third largest.

Russia’s booming banking sector is a key driver of the country’s economic growth.

“The banking sector has a direct effect on the economy as a whole. Its growth rate from 35% to 45% is high due to the fact that we have started from a lower base. But it is the kind of a rate we would look for if we want to expect the GDP growth rating between 7-9%,” stated Garegin Tosunyan from Association of Russian Banks.

According to a report from Moody’s rating agency, Russia’s ability to withstand the contraction in global lending makes the country’s banking sector attractive to foreign investors.