Russian banking system, resilient but fragile

The Russian central bank has withdrawn banking licenses for 30 establishments since the beginning of the year for financial reasons or wrongdoing. Yet the scenario of a liquidity crisis shows no signs of materialising, and the increase in credit risk is still mild.

The banking system has also been resilient, which goes to show that the worst was not inevitable1. Of course, with the recession, the rouble's depreciation and the impact ofmonetary tightening on interest margins, the number of banks reporting losses has increased since the beginning of the year to 245 banks. 

Measured over the past year, rouble-denominated deposits were up 6.6% for individuals and 13.5% for companies. Yet over the same period, the dollar appreciated by a little more than 50% against the rouble, swelling the counterparty in roubles of dollar deposits. Thus the volume of deposits has declined. Moreover, households have transformed their term deposits into demand deposits to benefit from higher interest rates, but also out of fear of losing access to the funds.

First, the dollarization movement of deposits, which accompanied the rouble's depreciation. Second, deposits by individuals have been rising again up, while corporate deposits have held stable, despite a stronger rouble.

As to credit risk, for the 30 largest banks, past due loans of companies and the self-employed have picked up sharply. Yet the non-performing loans ratio was still mild. Moreover, the upturn since the beginning of the year could have been much worse given the currency shock and the persistently high dollarization rate of corporate loans. As to household loans, the non-performing loan ratio increased only 1 percentage point since the beginning of the year, albeit from a much higher level.

The stabilisation of the rouble and oil & metal prices is thus an inevitable condition for keeping a like on credit risk, especially for companies, says BNP Paribas.