Fitch: Russia Banks - Ample FC Liquidity, Low Refinancing Risks
Most Russian banks have ample foreign-currency (FC) liquidity. The sector's FC assets exceed liabilities and refinancing risks are low, Fitch Ratings says.
Russian banks had a USD25bn net positive FC position at end-March 2016. The sector's USD112bn of external market debt does not give rise to significant refinancing risk, as the majority of this matures over the medium to long term. The sector holds liquid external assets of about USD40bn and can access FC liquidity domestically to support near-term repayments, for example through the central bank's FC repo facility.
We also believe the Russian sovereign, as a backstop liquidity provider, would help Russian banks, and, through them, corporates, to refinance their external obligations, unless further major shocks put significant pressure on reserves. Russian state-controlled banks and companies account for about 60% of external market debt, strengthening our view that FC liquidity support would be available.
The Russian corporate sector has an aggregate short FC position, which we estimate at USD68bn at end-March 2016. Corporates had external market borrowings of USD122bn and external liquidity conservatively estimated at USD30bn, which was likely to have been concentrated among a small number of entities. However, most external corporate borrowers have sound credit profiles or enjoy state backing, and should be able to cover any refinancing gaps through Russian banks.
Households are at least USD83bn long in FC judging by their net placements in domestic banks at end-1Q16. But households also hold billions in 'mattress money' built up during the rouble devaluation in 2014. Deposit dollarisation in the banking sector is significant with about 25% of sector retail deposits held in FC. But this is moderate compared to other CIS markets and the central bank is making efforts to de-dollarise banks' balance sheets, for example, by increasing risk weights applicable to certain FC loans and raising reserve requirements on FC deposits.
The Russian sovereign holds a large buffer, with net external assets reaching USD402bn at end-March 2016. Sovereign FC liquidity, including central bank reserves (USD394bn at end-1H16), is still robust despite weak oil prices and the imposition of international sanctions. This liquidity has been supported by the continued current account surplus, as rouble devaluation has restrained imports, and by external debt repayments, which have been lower than expected despite sanctions.
Russia as a whole had USD457bn of FC non-equity external liquid assets at end-March. This comfortably covered by 1.8x market FC external debt of USD260bn owed to non-Russian counterparties. The latter is only a half of Russian total external debt, while the other half, comprising intercompany and rouble-denominated liabilities, as well as Eurobonds held by Russian entities, is unlikely to result in a significant drain on the country's FC assets.
Further details of Russian banks' FC liquidity positions are contained in a report, published today, and available by clicking on the link. In addition to banks, the report provides an analysis of the FC positions and external assets/liabilities of Russia's sovereign, corporates and households.
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