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24 Jul, 2008 08:01

State Banks boom though credit crunch

Russia’s VTB bank has increased its share of the retail credit market by 2 percent despite global financial instability. Banks are finding it harder to raise money on the international debt markets – and that's giving an advantage to banks with

In the first half of this year banks issued 130 billion dollars worth of retail loans in Russia. 40 % of them were for cars and mortgages.Half of Russia's mortgage market is held by two partially state-owned banks, VTB and SBERBANK.

Laura Fainzilberg of Delta Credit says its getting harder to compete with state-backed banks that can borrow more freely.

State banks do have an advantage today because the government share is obviously providing a lot of free money and therefore they have an advantage and that’s probably creating a non competitive environment with others.  But nevertheless we are able to compete and we are still able to be profitable and we are still able to attract our client.

To help ease the liquidity shortage the Russian government last year began placing surplus budget funds with banks rated BB minus or higher.
By definition, banks with higher ratings tend to be those partially owned by the government.

But experts say that even access to cheap government money may not ease the pain for long, as Aleksandr Danilov from Fitch ratings explains.

Even though they can get this funding from the government, from the central bank, on a timely basis, regularly, but still its not a basis for long term growth. Foreign banks have the support from their parent entities, or can come to the market and get funding from the market more easily than Russian banks, and obviously it places them in a better position. 

In the current liquidity shortage both russian and foreign banks will have to rely on retail deposits as another source of long-term money. However in the face of rising inflation, Russians are saving less – and that means bank deposits won't grow significantly until the rate of inflation slows.