|
|
 |
Russian Banks Exhaust Financing Sources
The US mortgage crisis that started in February has made itself known among Russian banks. Due to the unfavorable conditions on the international markets, banks faced significantly limited opportunities to get financing abroad and by September these opportunities had almost disappeared. The main question – how to compensate for the absence of liquidity – has yet to be answered. If an answer isn’t found soon the rate of stock growth in the banking sector will shrink to at least half its current size.
The Iron Curtain of Credit
“The Eurobond and securities markets have no liquidity,” says Natalya Orlova, senior analyst at Alfa Bank. “Investors are spooked and there is no demand for bank capital.” Russian banks were denied access to Western debt markets, which have been used as the main channel of attracting Western financing. Relatively inexpensive and long term Western money attracted by means of Eurobonds and securities were of the sources of growth in the Russian system. Banks used that foreign investment to develop crediting.
The liquidity crisis cut off the lifeblood of the Russian banking system. According to a report by Bank ING, stock growth in the banking sector may shrink from 46% to 22%. Without demand for debt notes banks are being forced to cancel or put off planned Eurobond offers and securities deals. The Bank of Moscow was the first to forego their Eurobond offer, valued at $200 million in early July. Next VTB-24 officially announced that they would put off their $500 million mortgage-backed securitization. At the end of July MDM Bank announced that it had decided to delay its $400 million auto debt securitization. The day before yesterday Urban Mortgage Bank denied $400 million worth of mortgage securities. And the experts say it will only get worse. “On top of the mortgage crisis you’ve add the political instability of dismissing the government. Western investors wouldn’t buy bonds from Russian banks even with a 20% yield,” predicts Anatoly Maksakov, deputy chairman of Absolute Bank’s management board. In the current situation banks can attract syndicated loans. But this instrument is only available to a limited number of banks. “Only banks with high ratings, those in the top 30, can attract syndicated loans from abroad,” Maksakov said. For banks with a rating of BB (Russian Standard and MDM-Bank) the cost of a one-year loan in August-September varied from LIBOR +0.7%-0.8%, with a rating of B (URSA bank and Tatfondbank) varied from LIBOR +1%-2%. According to Mr. Maksakov’s prediction, the cost of a syndicated loan will grow by at least 1% in the coming months.
Bad conditions are not the only things keeping banks from using traditional means of financing: the credit risk basket is overloaded. Gennady Mekikyan, deputy chairman of the Bank of Russia, was first to warn bankers in August about the dangers of excessive international loans. In his estimation a “more or less normal” share of international loans is about 20% of banking passives and anything over 30% is unacceptable.” At the time he suggested “putting our heads together [with bankers] about how to place loans inside the country.”
Domestic Resources
It is not likely that banks will be able to remove the emphasis of loans in favor of the domestic market. “The Russian financial market is not yet developed enough to compensate for the lack of liquidity,” according to Anna Belyaeva, the assistant head of the international business department at Promsvyazbank. “There just isn’t the critical mass,” adds Orlova, “The amount of ruble-denominated bonds from Russian issuers is $10 billion, and the foreign debt of Russian banks and companies is $300 billion.”
The situation is getting worse as investors loose interest in bonds from Russian issuers. According to a report from ING Bank, in August the total amount of placed, corporate, ruble-denominated bonds was 11.5 billion rubles compared to 57 billion in July and 85 billion in June. The amount of ruble-denominated issues announced, but not realized, grew from 186 billion rubles on June 28 to 343 billion rubles as of September 3. Crediting on the inter-bank market won’t help the situation because of the short-term character of the loans. The Bank of Russia, which demonstrated in August its ability to refinance, is not in a position to support banks in the long-term. “The Central Bank has already done everything that it is able to do: it has expanded the pawn list, prepared to take on promissory notes and corporate loans,” Maksakov said, “The problem is that the Bank of Russia’s refinancing system is a priori short-term.”
Limited Opportunities
In these conditions the opportunities for banks to make it through the crisis on the international market are extremely limited. “In the current situation (having raised rates) banks should switch to a more active means of attracting investments from the population,” according to Andre Melnikov, assistant general director at the Agency for Investment Insurance. In his opinion the raise might be an additional 1-2% above the refinancing rate of the Central Bank (10%). “Granted, the result will not be a flow of new money into the banking system, but a redistribution of existing investments between banks,” Melnikov said, adding, “only those investors whose terms have expired will agree to change banks due to a more profitable rate.” Raising the rate in large banks and redistributing deposits draw money away from smaller banks that are playing on large rates.
According to a different version among market participants, banks cannot count on deposits by citizens. “In the event of a crisis the population will, more than likely, take their money to Sberbank,” notes Orlova.
Weak Link
Experts have a hard time separating the most vulnerable groups of banks. “Everything depends on the structure of the bank’s funding and the direction of their stock operations,” Belyaeva said. “The banks that experience the most problems are those that manage large amounts of crediting in illiquid projects and those that attract short-term crediting to finance medium-term projects. Those who don’t offer support to stockholders are also suffering, as well as banks that recreationally issue bonds with a small share of deposits in passives,” in the opinion of Igor Sukhanov, managing director of investment at The Bank of Moscow. According to statistics from ING, the top five “recreational” banks are Russian Standard (57% of stocks are long-term financing), Home Credit and Finance Bank (54%), Renaissance Credit (50%) and URSA Bank (35%). Russian Standard and Home Credit have the lowest shares (8% and 7%, respectively) of deposits in the (resource base), which seriously weakens their positions. Bankers predict that the situation will remain a problem for a few months. “The market will be unstable,” according to Denis Grishukhin, assistant director of the structured products department at the Agency for Home Mortgage Loans, “In the fall Western banks will close their fiscal year and publish their reports, in which we’ll see a great deal of negative news.” Maksakov estimates that the increase in cost of foreign loans in Eurobonds will be 1% for federal banks and 2% for commercial banks. The commission of banks organizing issues may increase by 0.5%-1%.
But Russian banks may come out ahead in the future. Experts predict that if the world financial market continues to act up, investors will come to the more stable Russian market. "Those very hedge funds that left American bonds can't sit forever in government promissory notes and currencies," Grishukhin said, “Sooner or later they will evaluate the quality of the stocks from the Russian banking sector and begin to invest in it. But first they’ll hold back in order to recalculate the risks.” The question is how long that will take.
Svetlana Dementyeva, Igor Orlov
All the Article in Russian as of Sep. 14, 2007
|
|
|
