Russia Warns Reduced Access to Credit a Main Concern
Russia’s central bank warned that reduced access to credit is one of the bank’s main concerns, signaling policy makers haven’t finished cutting interest rates.
“Stress tests show that the situation isn’t ideal,” First Deputy Chairman Gennady Melikyan told reporters at a conference in Moscow today.
The central bank has lowered the key rate seven times since it started easing policy in April even as inflation remains above 10 percent. Policy makers, who on Sept. 29 cut the key refinancing rate to 10 percent, are trying to combat restrictive lending conditions that threaten to slow a fledgling recovery in the world’s largest energy exporter.
“I don’t see any reason why they should not be cutting” rates, Ivan Tchakarov, a London-based analyst at Nomura Holdings Inc, said in an e-mailed reply to questions.
A record economic contraction may bring the inflation rate this year below the government’s target for the second time in a decade. Inflation will probably not exceed 10 percent this year, Alexei Ulyukayev, another of the bank’s three first deputy chairmen, said today.
The current level of inflation and interest rates provides a “big opportunity” to cut rates further, Ulyukayev said.
Benchmark interest rate cuts to date have yet to lead to an increase in lending, Audit Chamber Chairman Sergei Stepashin told lawmakers today.
Stress Tests
The ruble weakened 0.2 percent against the dollar to 29.1925 at the close of trade in Moscow today. Against the euro, the ruble added 0.2 percent to 43.5706.
Russia has stress tested all its banks, with results showing that some of the country’s 100 biggest lenders won’t fulfill capital adequacy requirements, Melikyan said. Capital shortages may appear within six months, he added. The central bank and the government have no plans to publish the results of the tests, he said.
Banks, and other companies, may struggle to sell debt to consolidate their balance sheets next year as investors opt to place their funds in government bonds instead, according to analysts at Bank of America Merrill Lynch. The government has announced it plans to sell as much as $18 billion in debt in 2010 to plug it’s an estimated 6 payday loans.8 percent budget deficit of gross domestic product.
Problem Loans
“We don’t see serious threats to the stability of the banking system,” Melikyan said.
Credit flows have remained tight even after a fall in delinquent loans, with bad debt in September declining 2.3 percent, not including Russia’s biggest bank OAO Sberbank, Melikyan said. The decline in bad loans may not represent a sustainable trend, he added.
According to Moody’s Investors Service, “problem loans” will rise to 20 percent of total lending by the end of this year, and swell to 25 percent in 2010.
Dwindling asset quality is depleting earnings at the country’s biggest lenders.
State-controlled Sberbank’s nine-month net income fell to 8 billion rubles ($274 million) from 102.9 billion rubles in the same period last year, RIA Novosti reported on Oct. 15, citing the bank’s Chief Executive Officer German Gref. VTB Bank, also majority-owned by the government, posted a net loss of 12.4 billion rubles in the second quarter, compared with a profit a year earlier, the bank said in a statement today.
Growth, Oil
A resurgence of demand for commodities has improved Russia’s growth prospects. Oil traded in New York touched $80 a barrel yesterday, having gained almost 80 percent this year. The economy may grow as much as 4 percent this quarter after the country emerged from recession in the previous three months, Deputy Economy Minister Andrei Klepach said at the conference. Output may expand more than 2 percent next year, he added.
If the price of oil, which makes up 30 percent of the economy, remains at current levels in 2011 and 2012, this could add 0.5 to 0.8 percentage point in annual GDP growth, Klepach said.
Foreign direct investment in Russia will fall at least 10 percent this year from last year, Arkady Dvorkovich, the top economic adviser to President Dmitry Medvedev, said today.
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