OREANDA-NEWS. July 07, 2010. Russia cut its foreign debt by USD5.5bn in 2Q10 to USD464.4bn, according to CBR. Debt in the corporate sector declined USD9.7bn to USD416.7bn, as Russian banks’ debt decreased by USD6.2bn (the corporate sector repaid USD3.5 bn), reported the press-centre of OTKRITIE Financial Corporation.

View: The level of foreign debt of Russian banks continues to trend downward, as banks have reduced their debt by 38% (USD75bn) from the peak levels of 3Q08. The decline in foreign borrowing by banks reflects the increase in domestic funding sources, which is not being matched with a demand for loans.

Therefore, Russian banks that have access to international funding markets also face excess liquidity from domestic sources. On the companies’ side, the decrease in borrowing is a function of the tightening in global markets, which has aided the shift toward domestic funding. To some extent the tighter global conditions explain some recovery in banking portfolios over the past few months. However, recently the corporate portfolios of banks have been expanding by just ~1% a month, which implies that companies are still cautious about increasing leverage and accelerating growth.