Russian Central Bank to offer unsecured loans

Russia’s banks could soon suffer as a result of their own generosity, as the huge number of loans dished out recently has depleted the padding in their cushions.

This is according to a survey by Raiffeisen bank, which has revealed serious problems on the Russian liquidity market.

Banks’ credit portfolios, the survey says, are growing at a higher rate than the amount of money they receive in deposits and this gap keeps growing. Quite soon this situation could lead to a serious shortage of money for Russian lenders.

The deposits have been accumulating since the 2008 financial crisis, during which time the economy was recovering and both individuals and companies were saving money in conditions of low consumer activity.

At the beginning of this year, the trend reversed and the demand for loans, fuelled by low credit rates, went up. At the same time, the banks’ deposit base stopped growing. After the situation on the international financial markets worsened again, it began decreasing as a result of rapid capital outflow.

In order to make saving more attractive to clients, Russia’s biggest lender, Sberbank, has already announced an increase in deposit rates. It is likely that other market players will have to follow its lead. This inevitably will reflect on the price of loans.

The head of Sberbank, German Gref, earlier forecast that banks would have to raise their interest rates in the autumn. Obviously, banks that do not survive the competition will have to leave the lending market.

The Russian Central bank announced on November 2 that it is to resume giving out unsecured loans to banks to cover a possible liquidity deficit. They will not have to secure the credit return by equities, property or other assets. However, any bank which experiences lack of liquidity will first have to prove it cannot be compensated by traditional refinancing tools.

Unsecured loans were widely used by Russian financial regulators to help lenders during the crisis years of 2008 and 2009. Now it seems they are preparing for the second wave.

Moody’s rating agency has warned Russian regulators that the volatility on international markets will negatively influence the situation with liquidity in Russia’s banking sector. It has already downgraded its development forecast from “stable” to “negative”.

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