World Economy

New Banks Help Kremlin Keep Economy Afloat

New Banks Help Kremlin Keep Economy AfloatNew Banks Help Kremlin Keep Economy Afloat

Four private banks with friendly ties with the Kremlin are emerging as big winners from Russia’s economic crisis, helping out dollar-starved companies at a time when large state lenders are hampered by western sanctions, Reuters reported.

The four, FC Otkritie, Promsvyazbank, Credit Bank of Moscow and B&N Bank, were relatively minor players only a few years ago. Now they are major beneficiaries of a bank recapitalization plan and have used central bank foreign currency refinancing tools to win business lending to state energy firms and others needing to meet big overseas debt repayments.

By contrast, sanctions over the Ukraine conflict have closed international capital markets to state lenders such as Sberbank, VTB and Gazprombank and private ones owned by allies of President Vladimir Putin such as Bank Rossiya. The state banks are also unable to use foreign currency refinancing tools from the central bank for more than 30 days due to risks for western clearing banks.

“Private banks are carving out a position for themselves by increasing lending to large industrial companies, whereas they used to have to wait in a queue behind state banking giants,” said Chris Weafer, senior partner at Macro Advisory consultancy.

“We are seeing the emergence of a new banking sector post-crisis,” said Weafer, a long-serving financial analyst based in Moscow.

  Assets Rise

Otkritie, the only of the four lenders whose stock has been listed for some time and is liquid, has seen its shares rise 25% in the past year versus an 18% rise in the broader MICEX index. Its assets, a reflection of its loan book, almost tripled to 2.7 trillion rubles ($41.3 billion) over the course of the year leading up to the end of June, Promsvyazbank’s assets rose by 30% to one trillion rubles, Credit Bank of Moscow’s by 60% to 760 billion rubles and B&N Bank’s more than doubled to 570 billion rubles, data from Fitch Ratings showed.

Promsvyazbank said last year it had lent hundreds of millions of dollars each to oil producer Lukoil, energy giant Rosneft and potash producer Uralkali around the time of the sanctions.

The private banks’ growth is especially striking because falling oil prices mean overall lending is contracting as the economy shrinks at the fastest pace since the 2008-2009 global financial crisis.

“Large private banks have been used more and more as prime channels to finance strategic sectors as the large state banks have been sanctioned,” said Vladimir Miklashevsky, trading strategist and economist at Danske Bank. They have shared in the spoils from a large-scale bank recapitalization program costing the state over 800 billion rubles that was agreed late last year.

Otkritie received 65 billion rubles of OFZ government bonds in May, while Promsvyazbank got 30 billion rubles of the bonds in August, Credit Bank of Moscow received around 20 billion rubles of them in June and B&N Bank has been promised a further nine billion rubles’ worth, the banks and the government have said.