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18 Aug, 2008 02:36

Sound advice holds Russian banks in good stead through credit crunch

In the year since the credit crunch began, the global financial system has acknowledged losses of one trillion dollars, and experts say it's far from the end. But Russian banks were urged to cut their exposure to foreign borrowing, and have proved more re

The first deputy chairman of the Central Bank of Russia in August last year urged banks to decrease their dependence on foreign money. For those who followed his advice the impact of the global credit crunch has so far been mild.

One of Russia's largest banks VTB was heavily hit only on the stock market. The bank lost 40% from the price of its IPO. The bank says it has no problem with foreign borrowing and has not suffered from liquidity shortage. But VTB has changed the structure of its loan portfolio.

“We have reduced our dependence on international borrowings because VTB is a growth story.  So to grow, and to grow as fast as we want to grow, you need to bring your liquidity, and that means at the moment, a core focus on Russia, on the local market. So we are very active with retail deposits and corporate deposits, and we have a very close and good dialogue with the State”

However, experts say the Russian market cannot provide enough long term money, and most mid-size banks, especially those not backed by the state, do experience a liquidity shortage. Banks are adapting to the situation and have reduced the share of more risky retail lending and focused instead on corporate borrowers.

“Since the end of 2007 we saw a very substantial increase in the corporate loans in Russia, and as a result the Russian banks were able to accelerate the corporate lending growth.  I would say this was the positive side of the global credit squeeze, because Russian banks were finally able to gain exposure to the local borrowers.”

Standard & Poors praised the action of the Central Bank of Russia, and says it's timely liquidity injections significantly reduced the impact of the crisis.

“We classify every banking sector globally, from one to ten, one being the strongest banking sector and ten being the weakest.  So we recently moved Russia from eight to seven, meaning that we acknowledge the progress that the regulation and supervision made in the last two years.”

In the first six months of this year retail lending in the country grew 63%, while corporate loans are 67% up. Market watchers have no doubt that despite the global turmoil Russia's position in the mid term looks secure.