Herbert Stepic, chairman of Raiffeisen International and a pioneer banker in emerging Europe, yesterday welcomed president Vladimir Putin’s indication that he would accept the prime minister’s job in March next year. “Putin will continue to run the country from another position. It’s very positive for the economy,” Stepic told Emerging Markets.
While western political sentiment has reacted negatively to the centralisation of power under Putin, Stepic, reflecting many European business leaders’ views, was unambiguously positive. “Putin stands for stability – and that is what the country needs, at a time when there is still much to be done on reform, specifically in the regions”, he said.
Russia’s “state capitalist” approach, based on the concentration of industrial assets in state-controlled corporations, holds no fears for Stepic. “Putin wants to control the vital industries – which means oil, gas and precious metals”, he said. “As for all the rest, he is very keen to have foreigners come in and run businesses.”
Raiffeisen’s own Russian subsidiary, the largest foreign-owned bank in Russia, has had “all the assistance it needs” from the authorities. Stepic said that the liquidity crisis, which has raised the spectre of default among smaller Kazakh banks, would only hit some pockets of the Russian banking sector.
“Kazakh banks are 70% dependent on cross-border funding. In Russia there is a much higher level of [domestic] deposits.” The contrasting ownership profiles are a factor: whereas Kazakh banks’ owners are largely private sector domestic players, in Russia the state-owned banks remain dominant and foreign-owned banks also play a significant role.
Stepic said the liquidity crisis would impact “a small part of the [Russian] banking industry”: medium-sized Russian banks and smaller banks in the regions without significant or foreign owners.
In a report issued on Thursday, Fitch said that Russian banking sector liquidity “remains vulnerable due to the weak funding franchises of many banks, fragile interbank market and depositor confidence, and the large numbers of banks”.
While liquidity profiles and management had improved at most leading banks since the 2004 mini-crisis, changes at medium-sized and small institutions were less marked. Fitch and Moody’s have both downgraded Russian Standard Bank, the largest consumer lender, this month. Other similar institutions that borrow externally to fund consumer lending are being closely scrutinized by the market.
Stepic declined to comment on other institutions, but said that Raiffeisen had a policy of lending “only to the upper segment” of the retail market, and does not participate in the high-risk-lending sector. Property prices across central and eastern Europe are due for a correction, the Raiffeisen boss believes. “The residential market in the CIS is a natural one: there is a young urban population, and strong demand, for example from people looking to move out from their parents’ flats and set up their own homes. But in my view the commercial property market is overheated.”
The mayors of large cities such as Moscow and Kiev had encouraged high prices “on purpose”, he complained.