Russia’s largest banks may do well out of the credit crunch, but what about the rest?
Russia’s large state-owned banks are expected to come out of the international credit crunch even stronger – as they can still access cross-border funds, albeit at higher interest rates, and gain market share at the expense of struggling competitors.
Medium-sized banks are finding funds tougher to raise, and are likely to curtail their growth plans, bankers say. Some banks that borrowed too heavily as they expanded rapidly in 2006-07 could be in trouble. “The fundamentals are stronger than ever. It’s the fallout from the international crisis that is being felt in Russia,” Johann Jonach, chairman of Raiffeisen Bank Russia, tells Emerging Markets. “There is hope for the largest names. But there are a significant number of medium-sized banks who cannot raise any money abroad. If they can, it is in club deals with high margins. They will have to scale back their business.”
Steve Thunem at VTB-Europe says: “To the extent that there is a requirement for dollar funding, clearly that’s tight. Institutions will have to conserve cash and grow more slowly than they anticipated. That’s going to be a feature for the next 12 months: it will mean slower growth than expected.”
Michel Perhirin, CEO of MDM Bank, sees the banking sector’s problems in long perspective. “For the last six or seven years, Russian banking has been the best place to be. Now it is back to ‘normal’: the market has become very competitive. Resources are scarce relative to the large scale of the projects undertaken, and the external factors are not helping.”
Perhirin points out that there is still a tremendous upside to retail banking in Russia. “The level of bankization is still low. Large tranches of the population still have to live on low revenues. But the trend is upwards, and more and more people, especially in the regions, are becoming eligible for banking services.”
MDM’s regional network assets saw 54.5% growth in 2007, compared to 26% in Moscow.
Natalia Orlova, chief economist at Alfa Bank, points out that Russian banks’ average exposure to foreign debt comprises only 20% of their assets – compared to 50% in Kazakhstan. She points out that in the second half of 2007, when the debt capital markets were closed to Russian corporate and bank borrowers, they nevertheless managed to attract a remarkable $65 billion in cross-border debt, mainly bank loans. “This is solid confirmation that good fundamentals sheltered Russian borrowers from the subprime debt panic.” —S.P.