Russia Ready To Save Banks From Financial Crisis

Mar 27 2014, 3:02pm CDT | by

The Russian government will save its national banks from any financial crisis caused by Western economic sanctions, or by other means.

Finance Minister Anton Siluanov said Thursday that the country has $88 billion worth of an emergency cushion in its sovereign wealth fund, should the economy take a turn for the worse.  As it is, Barclays Capital forecast this week Russian GDP to fall below 1% this year.

The National Wealth Fund is an emergency resource that can be used in the case of a crisis to help banks and big companies that have large obligations to external creditors,” Siluanov said at the Moscow stock exchange today. He told reporters there that banks were not in bad shape.

On Wednesday, a number of banks, including VTB Capital, were either downgraded or put on credit watch negative by Standard & Poor’s because of sanctions.  So far, most sanctions against Russia over its political turf-war with Ukraine have been targeted to individuals. But on March 20, four days after the Crimean peninsula voted to secede from Ukraine and join Russia, the U.S. Treasury sanctioned Rossiya Bank Group for its link to officials deemed connected to the crisis in Ukraine.  Banks owned by the group saw Visa and Mastercard transactions banned this week.  VTB Capital and Sberbank, the nation’s top two financial institutions, were not impacted directly by the sanctions.

Economic Development Minister Alexei Ulyukayev said Russian authorities may take a number of steps to increase the capitalization of the country’s banking system if the economic situation worsens. One of the steps may be to allow state banks to direct funds to supplement their capital instead of paying dividends.  ”In particular, we are discussing the possibility of helping banks direct funds, which would have been paid to the owners in a simple situation, including to the state as a major stakeholder, to supplement their capital,” Ulyukayev said at a forum at the Moscow stock exchange.

Capital flight from Russia could reach at least $100 billion in 2014, according to the Kremlin, as investors turn sour on Russia.

According to Central Bank data, net capital outflow from Russia increased from $54.6 billion in 2012 to $62.7 billion last year.

The World Bank warned on Wednesday that Russia may see capital outflow at $150 billion this year due to the current standoff with the West over Crimea.

Source: Forbes Business


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