Russian Banks’ External Liabilities Decline, Assets Rise

Moscow, Russia - A significant development in the Russian banking sector has been observed, with Russian banks experiencing a substantial reduction in their external liabilities in 2009, while their external assets continued to increase.

Reduced Dependence on Foreign Funding Sources

According to a recent report by the International Monetary Fund (IMF), Russian banks’ reliance on external borrowings declined to 13% of their book value at the end of 2010 from 20% in 2007. This trend is expected to continue, with more banks opting for domestic funding sources such as deposits and interbank lending.

Increased Focus on Domestic Assets

Despite the decline in external liabilities, Russian banks continued to increase their assets in 2009. The report highlighted that securities investment by Russian banks are mostly in domestic assets, including government and corporate bonds, with negligible exposure to distressed European sovereign securities.

Improved Bank Profitability and Capital Adequacy Ratios

The stability of Russia’s banking system has been boosted by a significant improvement in bank profitability and capital adequacy ratios. The aggregate capital adequacy ratio stood at 18.1% in December 2010, well above the prudential minimum of 10%.

High-Profile Bank Failures

However, the report also highlighted two high-profile bank failures - Mezhprombank (MPB) and Bank of Moscow (BoM). MPB, which was among the top 30 Russian banks, defaulted on its Eurobonds issued in 2007 and had its license withdrawn by the Central Bank of Russia. BoM, which was partly owned by the city of Moscow, was found to have problem loans amounting to one-third of its total assets.

Continued Vigilance Needed

The failures of these two banks served as a reminder of the need for continued vigilance in the Russian banking sector. Despite this, the overall trend suggests that Russian banks are becoming increasingly resilient and less dependent on foreign funding sources.

Expert Opinion

“The reduction in external liabilities is a positive development for Russia’s banking sector,” said [Name], an expert at the IMF. “It demonstrates a growing confidence in domestic funding sources and a reduced dependence on foreign borrowings.”

Conclusion

The report concluded that while Russia is a marginal source of funds even within the Commonwealth of Independent States (CIS), its banks are well-positioned to continue their growth trajectory, driven by increasing domestic demand and a stable regulatory environment.