BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/07
Banks increasingly relied on financing from the Central Bank of Russia to support this growth, with CBR participation in total assets rising from 9 % to 12 % just in the fourth quarter. CBR support last reached such levels in 2008 during the financial crisis. The CBR stepped in to support banks after access to other sources of financing had become more difficult (e.g. due to economic sanctions).
Uncertainty surrounding the ruble’s weakening caused households to pull their deposits out of banks, causing the deposit stock to shrink by 2.5 % last year. Although deposit rates were hiked to more than 14 % in the second half of December, deposits still dwindled 1 % a month in December (m-o-m). This was actually less than most observers expected, and the stabilisation may reflect the government’s decision in December to raise deposit insurance coverage from 700,000 rubles to 1.4 million rubles (nearly €20,000). Household forex deposits continued to increase, following standard Russian protocol during a crisis. As of end-2014, forex deposits represented 26 % of all household deposits, a nearly 10-percentage-point increase from January 2014.
Corporate deposits rose 24 % last year, outpacing their growth in recent years, including 2008. Deposits accounted for nearly 22 % of the banking sector’s total assets, an increase of two percentage points from the end of 2013. The rise could signal that large state-owned enterprises increased their deposits in line with the government’s recommendation.
Borrowing of both firms and households increased about 13 % last year. The pace of growth in corporate borrowing was about the same as before, while growth of household borrowing slowed significantly. The total stock of loans granted to households actually shrank in December, while the amount of non-performing loans increased. Non-performing household loans made up nearly 6 % of the loan stock at the end of the year. Non-performing corporate loans also jumped by about a third last year. Given the weak economy, the stock of non-performing loans is expected to rise significantly this year. Higher financing costs will further slow growth of the loan stock.
The capitalisation of banks worsened last year. The capital adequacy ratio slid from 13.5 % at the start of last year to below 12 % by the end of November. The government decided in December to provide 1 trillion rubles in capital support to 27 banks via the Deposit Insurance Agency. The amount equals 15 % of banking sector aggregate capital.
Russia’s banking sector is in different shape than during the 2008–2009 financial crisis. Banks are struggling with larger portfolios of non-performing loans and capitalisation is weaker. Economic sanctions and higher interest rates have cut off the access of banks to affordable credit and hurt their ability to intermediate credit to the wider economy. The banking sector is also more concentrated than in 2008, when the five largest banks held 43 % of total assets. Today they hold 54 %. All five banks are state-controlled, so the state’s role in the banking sector has grown further.
Stricter supervision has caused over 100 small and mid-sized banks to lose their licences since summer 2013, and more banks are expected to lose their licences this year. Some 835 banks operated in Russia at the end of 2014.