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DatabankMay 14 2015

Russian banks: exposure to dollar loans

While the rapid devaluation of the rouble may have slowed, top Russian banks are still exposed to US dollar-denominated loans.
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The dramatic fall in the value of the Russian rouble may have left many Russian borrowers stranded as the rouble value of their US dollar-denominated loans ballooned over the course of the past year. The top five Russian banks by assets all hold significant amounts of dollar debt on their books; however, for the two largest lenders in the country, Sberbank and VTB, it constitutes a noticeably smaller proportion of the overall loan book than at other banks. 

As chart one shows, Alfa Bank – the fifth largest Russian bank by Tier 1 capital – is the most exposed to dollar-denominated loans of the five banks, with such loans accounting for 42.78% of its loans to customers. At VTB and Sberbank, such loans comprise 25% and 22.61% of the loan book, respectively.

Chart one final

Lending patterns

Currency risk, however, depends on who the loans are made out to: retail borrowers are less likely to have income in the currency that they took the loans out in, making them more likely to default. Businesses, on the other hand, typically receive at least part of their revenue in the same currency they have debt in.

Russian banks do not publish breakdowns of their foreign currency loans, but a look at the overall loan structure is nonetheless helpful. From chart two it can be seen that banks most exposed to dollar-denominated loans, Gazprombank and Alfa Bank, focus more on lending to corporations, while VTB Bank and Sberbank have larger portfolios of retail loans.

Chart two final

Too early to tell

The end-of-year numbers indicate that, for the most part, loans were being diligently repaid. Unfortunately, considering that the currency collapse took off in November 2014, these non-performing loan (NPL) figures are not telling the full story. Since loans need to be past due for at least 90 days before they are reclassified as non-performing, any defaults that have since come about as the result of the rouble devaluation were not captured in the annual reports.

Still, all of the top five banks, with the exception of Otkritie, recorded an uptick in underwater loans in 2014. Alfa Bank has seen the largest increase – the bank's NPL ratio grew by 1.33 percentage points in 2014. Next was VTB Bank, which saw its problematic loans grow by 1.1 percentage points, to 5.8%. At Sberbank and Gazprombank the change was smaller, as the NPLs at the two banks rose by just 0.3 and 0.2 percentage points, respectively.

Additionally, the frantic interest rate hike in December, from 10.5% to 17%, may have left more defaults in its wake, as the Russian Central Bank was scurrying to keep in check the soaring rouble. While the central bank is now poised to gradually bring the interest rate back down to a lower level, since the rouble seems to have settled into an upward trajectory, the rate is still much higher than a year ago – at the time of writing the interest rate was 12.5%, five percentage points higher than the May 2014 level.  

Chart three final

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