Russia Banking Sector Report

 Published On: Mar, 2014 |    No of Pages: 28 |  Published By: Emerging Markets Direct | Format: PDF
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This report provides an overview of Russia’s economic and banking sector overview through February 2014. The report includes discussion of recent political turmoil in Ukraine and the effect it has on Russian economy. The Central Banks’ economic forecasts, monetary policy, as well as extensive description of banking system developments in 2013. 

In its latest monetary and credit policy report the Central Bank of Russia (CBR) revised the GDP growth forecast for 2014 from previous x% to x.x%-x.x%. This estimate also includes a x.xppt estimated positive effect from Sochi 2014 Winter Olympics. The growth forecast for 2015-2016 was also cut from previous x.x%-x% to x.x%-x%.The stagnation in the economy continues, but it is expected to be over in Qx/xx-Qx/xx. EconMin hopes that starting in Qx the dynamics will turn around in such segments as machinery manufacturing and food processing. GDP growth in Qx/xx is forecasted at x%. The CBR did not yet revised its x% inflation target for 2014.

The crisis in Ukraine has raised the risks to Russia's already weakening economy presented by currency depreciation and capital flight, Fitch Ratings says. The situation is still highly unpredictable but Russia's sovereign credit profile is robust and events so far do not have implications for the country's 'BBB' rating, Fitch Ratings informed. 

The rouble has now fallen around x% against the dollar this year, partly driven by fears across emerging markets about the impact of US tapering, but also on Russia-specific concerns about low growth and the weakening current account surplus, and in anticipation of further liberalisation of the exchange rate regime, Fitch points out. 

Russia's already strong sovereign balance sheet is characterised by low sovereign debt levels and high international reserves (around USDxxxbn in late February). Sovereign net foreign assets equivalent to xx% of GDP provide an ample buffer against external shocks, supporting the rating. These are sufficient to cover gross external financing needs more than three times over. The Reserve Fund, the government's main fiscal buffer, contains USDxxbn (x.x% of GDP), giving Russia a cushion against a drop in demand for its sovereign debt. 

Key Points: 
• GDP growth in January seen at x.x% y/y, EconMin sees GDP growth in 2014 below x%
• Fitch and Moody’s believe crisis in Ukraine to have negative effect on Russian Economy 
• The international reserves of Russia decline by x% y/y in February
• CBR raises main interest rate as RUB drops due to military involvement in Ukraine
• Capital outflow from Russia grows by xx% to USD xx.xbn in 2013. 
• International rating agencies maintain the negative outlook on Russian banking sector
• Actual real sector crediting growth in Russian banking sector slows down from xx%-xx% seen in the beginning of the year to xx.x% y/y for 2013 overall vs. expectations of xx% growth by the Central Bank of Russia (CBR).
• The consolidation of the banking sector to continue in 2014-2015, as slowing economic growth limits the scope of organic growth
• Moody’s welcomes Russian banking sector’s consolidation, Fitch notes that Russian banks significantly exposed in Ukraine
Executive Summary

Sector overview
Stakes high in Ukraine as Putin authorises military option 
EconMin: GDP growth estimated at x.x% y/y in January. 
EconMin: GDP growth not to exceed x% in 2014. 
Officials speak of stagflation. 
CBR sees positive effect of Sochi Olympics worth x.xppt of GDP. 
Fitch affirms Russia at BBB, outlook stable 
Fitch: Crisis to Weigh on Russia Economy 
Moody’s: Russia’s uncertain position on Ukraine is credit-negative. 
Russia’s budget surplus at x.x% of GDP in January. 
Russia's international reserves down x% y/y to USD xxxbn in February. 
Russia’s external debt up by xx% in 2013 - CBR. 
Russia keeps external borrowing plan at USD xbn for 2014. 
Russia's real effective RUB rate down by x% y/y in February.
CBR eases currency interventions in February
Inflation in Russia inches up to x.x% y/y in February. 
Russia’s EconMin: GDP, inflation targets in 2014 could be underperformed. 
Russia’s CBR sticks to 2014 targets. 
Russia’s CBR ups main interest rate to x% as RUB drops on military involvement in Ukraine. 
Russia’s base sectors, investment, retail trade continue declining in January. 
Russia's Business Confidence Index in February flat for extraction, down for processing. 
Russia’s current account surplus halves to USD xxbn in 2013. 
Russia’s foreign trade surplus down by x% y/y in 2013. 
Russia’s foreign investment inflow up by xx% y/y in Jan-Sep, outflow up by xx.x% y/y, balance negative.
Outflow from Russian country funds continues at USD xxxmn in week ending February xx.
Capital outflow from Russia up by xx% to USD xx.xbn in 2013.
Russia’s broad definition monetary base up x.x% y/y in 2013.

x. Banking:
Moody’s welcomes Russian banking sector’s consolidation. 
CBR: RUB weakening of xx% would costs top banks USD xbn. 
Fitch: Russian banks significantly exposed in Ukraine. 
Fitch: Capital buffer proposal could strengthen Russian banks.
Weaker rouble, markets may pressure Russian bank capital

Main Banks: 
Russia's Sberbank places USD xbn in xx-year subordinated bonds. 
Fitch rates Sberbank’s subordinated Eurobonds at BBB-. 
Sberbank eyes expansion on Czech market in 2014. 
VTB Bank could merge VTBxx and Bank of Moscow. 
Nomos Bank raises USD xxxmn in SPO. 
Agricultural Bank could place xx-year Eurobonds. 
S&P affirms Russia’s development bank VEB at BBB, outlook Stable. 
Gazprombank places USD xxxmn Eurobonds. 
PromSvyazBank postpones subordinated bonds on bad markets. 

Table x CBR’s reserves
Table x CPI inflation

Figure Real GDP growth
Figure Reserve Fund
Figure Public external debt
Figur CPI inflation dynamics
Figur Output in base sectors
Figur Current account balance
Figure Export & Import growth
Figure Net capital outflow
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