Credit Hysteria
The Central Bank of Russia is seriously worried about the high growth rate of the banking system. The volume of corporate crediting is growing at a rate of 50 percent annually. The concern is that Russian banks are backing up long-term corporate credits by attracting short-term loans on the internal market. That is a dangerous imbalance that can have consequences for the entire banking system, experts warn.
On Friday, first deputy chairman of the Central Bank Gennady Melikyan stated at the 23 annual general assembly of the Association of Regional Banks of Russia that the Central Bank is alarmed by the general growth indicators in the banking system. “Let’s temper our zeal,” he urged, saying that the growth of credits to non-financial organizations in the first four months of the year was 14.2 percent. That’s amounts to about 50 percent annually, he stressed.
Market analysts agree with the Central Bank. According to Alfa Bank chief economist Natalia Orlova, the corporate crediting portfolio grew by $55 billion in monetary terms the first quarter of the year. In the first and second quarters of 2007, it grew by $20 billion, and by $40-45 billion in the third and fourth quarters. “Previously, Russian corporations borrowed on the world market, but after it closed, they began to draw credits from domestic banks,” Orlova explained. The stability of the banking system in those conditions has been questioned by the Central Bank. Melikyan characterized the growth rate as satisfactory, but noted the growing credit risks. “We wouldn’t accommodate a drunken driver travelling at 120 km./h. who can’t see the potholes,” he explained metaphorically.
It is the means of financing the credit that disturbs the Central Bank. Its data indicate that the influx of foreign capital between January and the end of April this year was $12.8 billion (compared to $40-45 billion in the same period of last year). The volume of refinancing in that period exceeded $12 billion. “The question arises, where did that $55-billion growth in corporate crediting come from,” said Orlova.
Alfa Bank data indicate that deposits in retail accounts in Russia banks rose $16 billion in the first quarter, and those in corporate accounts rose $27 billion. “It turns out that all domestic borrowing from the retail and corporate sectors finance about 80 percent of the growth of the corporate credit portfolio ($55 billion),” Orlova explained. With the shortage of long-term resources, Orlova said, banks finance credit growth through less dependable internal resources: credit using securities as collateral (repo operations) and interbank credits for up to a year, which is dangerous.
Orlova said that, by financing long-term credits with short-term, banks risk at the minimum causing interest rate growth. If a shortage of monetary funds arises on the market, in February or March due to a tax payment, for instance, refinancing may become completely inaccessible to banks. “Problems may arise because of the imbalance between the terms of Russian banks’ assets and liabilities,” agreed Raiffeisen Bank deputy chairman Pavel Gurin. Trust Bank chief economist Evgeny Nadorshin thinks banks’ long funds may run out in the second quarter. In that connection, he thought that banks would have to reduce the volume of corporate crediting and become more selective when providing funds. So far, the growth of the credit portfolio of Russian banks is being accompanied by a worsening of its quality, experts note. “Now only major companies can use bonded loans and syndicated credits,” commented Nadorshin. “In connection with the increased demand for bank credit, a third echelon of company is emerging, medium and small business with heightened risk.”
Banks have already begun to pull in credit limits for clients in some segments. Specialists note that builders and developers have already suffered from the falling volume of long-term credit, which they traditionally use, and retailers have experienced problems refinancing bonded loans. “The increased demand for credit resources began to arise for retailers last autumn, when Russian companies first felt the world liquidity crisis for themselves,” Unicredit Bank board member Evgeny Retyunsky said. Oleg Mkrtchyan, co-owner of Partner Omsk, a Pyaterochka franchise, said that his company has recently been refused credit by several banks, which he declined to identify.
Executive director of the Matrix chain Oleg Blindyaev says the cost of credit has increased to 15-16 percent annually, while his company paid 1.5-2 percent less a year ago. Analysts say that closing corporate borrowers’ access to long-term resources will force them to turn away from investment projects with seven- to eight-year recoupment periods. That experts say, will lead to growth in the price of goods and services for final consumers. Even the Central Bank, Melikyan said, cannot guess where the situation will go from here.
Igor Orlov, Elena Pashutinskaya, Kristina Busko
All the Article in Russian as of May 26, 2008
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