Sberbank headquarters in downtown Moscow,
In the latest sign that Western sanctions are causing pain for Russia Inc., a new report from Standard & Poor’s (MHFI) describes Russian banks as the “most vulnerable” of any in the world’s major emerging markets.
Sanctions “directly affect” more than half the assets in Russia’s banking sector, which is dominated by such state-controlled lenders as Sberbank (SBER:RM) andVTB Bank (VTBR:LI), according to S&P. At the same time, the country’s slumping economy “will result in more bad loans and will pressure banks’ capital and profitability.”
The rating company says that Russian lenders’ reliance on central bank funding has now reached 10 percent of their total liabilities, compared with 13 percent during the worst of the global financial crisis in 2009. While banks probably have enough liquidity to refinance international debt falling due next year, S&P says, “the longer the sanctions last, the more challenging funding and liquidity conditions will become.”
Banks in some other emerging markets, such as Brazil and South Africa, are also suffering from economic slowdowns. In others, such as India, lenders’ profits are being dented by troubled loan portfolios. But none of these or the other countries surveyed by S&P—including China, Mexico, and Turkey—faces the additional burden of economic sanctions. The U.S. and European Union have sanctioned six major Russian banks, including Sberbank and VTB, cutting off their access to Western capital markets.
Sberbank and VTB rank among the world’s 100 biggest banks by assets, and under President Vladimir Putin they’ve enjoyed rapid growth, benefiting from Kremlin backing as they elbowed aside foreign rivals and gobbled up smaller Russian institutions. Now they’re clearly hurting. Sberbank reported a 7.8 percent drop in profit in the first 10 months of the year and said on Nov. 14 that it might need “state help.” VTB, which reports earnings Thursday, has already asked for a government bailout.
Russian government and business leaders have only recently realized that sanctions may stay in place for a long time and that urgent action is needed to limit the damage, VTB’s chairman, Sergey Dubinin, tells Bloomberg News. “They were hoping the sanctions were temporary. Now they’ve woken up to the new reality.”
Bloomberg Businessweek
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