Russian banks have the appetite to lend — Fitch Ratings reckons that domestic banks will loan the equivalent of $110bn to companies in 2012, a 20% rise on 2011. This is more than three times the amount lent in the Middle East last year.
But the high prices that Russian banks charge for loans are prohibitive for loan book growth. There have been hints of a resurgence of higher pricing around negotiation tables of late, largely driven by tough talk from those Eurozone banks still looking for new Russian deals. But Russian banks will find it tough to compete regularly with international lenders on deals that are priced below 400bp over Libor.
And while rouble loans have their place for borrowers, the country’s export-driven credits want their funding in dollars, which pushes the pricing up even further for domestic loans.
As well as pricing, another big hurdle that must be cleared is the idiosyncratic documentation hangover derived from a history of borrowers favouring bilateral loans. Unlike in the western European market, Russia does not have a standardised loan framework. And until regulators can get banks together and install some standardised Loan Market Association-type documentation, international bankers will avoid signing into certain contracts with Russian counterparts.
The Association of Regional Banks of Russia is making inroads with this. The industry body is the country’s second largest banking union and has brought in the LMA to advise on standardising loan documentation. But the effect will be limited in scope for syndicated loans involving international banks as Russia’s largest lender Sberbank is not an association member, though state-owned rival VTB is.
Until the fundamental issues of high pricing and documentation clarity are resolved Russian banks will struggle to become lenders of first choice — despite deep pockets and enviable market penetration.
Until then, Eurozone lenders should be keeping an eye on Japanese and US banks. Without dollar funding problems to worry about, they have been given a golden opportunity to sidle up to Russian borrowers.