Russian banks

Russia came through last autumn’s liquidity squeeze better than expected. No large bank failed and the rouble’s slow-motion devaluation, though costly for reserves, prevented bank runs that would have evoked memories of its 1998 default. Now for the second wave. With the economy contracting, real incomes falling and joblessness spiralling, non-performing loans are set to mushroom. Could the ghosts of 1998 still stir?

Russian banks do not have the same US subprime-related toxic assets that laid low US and west European counterparts and did not ape the huge foreign currency lending of central European banks. Since credit demand in Russia, unlike in the west, exceeded supply even during the credit boom, banks could also be choosy in lending. NPLs could nonetheless rise to 10-20 per cent of credit portfolios, ministers and bank executives warn. Forecasting is complex because it is unclear how big the problem already is. Overdue loans have doubled in recent months to about 3 per cent, according to figures from Russia’s central bank. But these count only overdue interest and the overdue portion of loan principal; under international definitions, NPLs may be three or four times higher. Alfa Bank, Russia’s number two privately owned bank, warned last week that its overdue loans were nearing 10 per cent and provisions might wipe out this year’s profits; its president has said sector-wide NPLs could reach 20 per cent.