Most Russian Government Funding Used by State Banks, Finds Fitch

Fitch Ratings has reported that Russian state-owned banks have accounted for a majority of the recent increase in the sector’s short-term borrowing from government institutions. Fitch notes that to a large extent these facilities were used to fund growth, while sector liquidity remains manageable. However, the agency notes the increased dependence on state funding and somewhat weaker asset/liability maturity profiles of some institutions, in particular JSC Bank VTB.

At 1 November 2011, the volume of funding provided to the Russian banking sector by the Central Bank of Russia (CBR), the Ministry of Finance and regional governments exceeded RUB2.6 trillion (8.4% of sector liabilities). This is a large number in itself, and also a major increase from RUB1.2 trillion (4.2% of sector liabilities) at 1 July 2011, giving rise to investor concerns about the liquidity positions of Russian banks. Strong demand for liquidity persisted in November, although this was mostly refinancing of previously raised volumes, in Fitch’s view, and the current structure of the sector’s government borrowing is therefore likely to be similar to that at 1 November.

A review conducted by Fitch of public disclosures of its 55 rated Russian banks indicates that state-owned banks accounted for a high 84% and 88% of borrowing by rated banks from government institutions at 1 November and 1 July respectively, compared with their 55% share of system assets at end-3Q11. Fitch-rated privately-owned banks contributed only 11% of the borrowing at 1 November (compared to their 28% share of assets), while foreign banks accounted for 5% (16% of assets). As a result, government funding made up an estimated 11.6% of the reviewed state-owned banks’ liabilities at 1 November, but only 8.4% at private banks and 5.2% at foreign banks.


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