* Banks use short-term repo operations as key liquidity tool
* Sberbank, VTB push for long-term liquidity to stabilise
* Growth in deposits lags bank lending
By Oksana Kobzeva
LONDON, Nov 29 Russian banks concerned about
meeting increasing demand for loan growth, are urging the
central bank to provide long-term liquidity alongside short-term
financing to avoid shocks to the financial system.
They include Sberbank, the country's biggest bank,
which accounts for one-third of lending in Russia.
"We are not (calling) for flooding us with money, but we
want the market situation to be stable," Sberbank Deputy
Chairman Bella Zlatkis told a banking forum held by Adam Smith
Conferences on Wednesday.
The central bank is trapped between the need to support a
weakening economy by stimulating lending growth, and the
regulator's own core goal of lowering inflation.
Banks are worried they will be unable to sustain current
rates of loan growth - 11.6 percent for the corporate sector and
33 percent for retail lending - without state support. Loan
growth is outpacing deposits: retail deposits added 11.2 percent
while corporate funds were up by 8 percent as of Nov. 1.
A high share of short-term state funding for banks is
threatening compliance with regulatory norms, Zlatkis said. Such
funds account for 11.3 percent of Sberbank's liabilities, which
she said the bank is not looking to increase.
Zlatkis is requesting the central bank at least extend the
length of time for which it provides liquidity to banks.
Such a move would resemble the extraordinary support
extended to euro zone lenders by the European Central Bank
through roughly a trillion euros' worth of cheap three-year
loans made in two operations almost a year ago.
Zlatkis's comments echoed those by German Gref, Sberbank's
chief executive, and Andrey Kostin, chief executive of Russia's
No. 2 bank VTB, who are both pushing for more cheap
Russian banks' debt to the central bank is around 2.5
trillion roubles ($80 billion), double what they owed the start
of the year and near levels seen during the 2008-09 financial
The central bank is ready to increase this further, but
bankers say they would prefer an extension of the terms on which
liquidity is provided.
According to Reuters data, the bulk of this debt comes from
short-term liquidity operations (repos), with one-week repos
drawing the highest demand. Their maximum duration is one year.
Dependence on short-term liquidity poses a risk for the
financial system, bankers say, as an inability to quickly repay
debt by a major player may create a "domino" effect.
With around 1,000 lenders, most of them small, Russia's
banking sector is especially vulnerable to liquidity shortages.
Frederic Oudea, chief executive of France's No. 2 listed
bank Societe Generale, told Russian daily Vedomosti
this week that bank failures during the financial crisis were
largely due to liquidity problems rather than lack of capital.
Earlier this month, Renaissance Capital founder Stephen
Jennings decided to sell out of the investment bank which he
part-owned, offloading his share to billionaire Mikhail
Sources said then that a ratings cut by Moody's of holding
company Renaissance Financial Holding Ltd. had triggered a
liquidity crunch at RenCap.
"There are risks which counterparties should bear in mind -
we don't know what would have happened with RenCap if Onexim
hadn't done what it did," Artem Konstandian, chief executive of
top-10 lender Promsvyazbank said at a conference this week.
Renaissance Capital said in a statement that it had no
short-term debt to Onexim, but "the decision to move forward
with the Onexim acquisition was taken to put the firm on stable
financial footing and return the business to profitability".
Central bank Deputy Chairman Sergey Shvetsov told
journalists this month that RenCap was one of the largest
players in the interbank repo market, saying that Onexim as a
new owner will develop RenCap which is "good for clients and for
Trying to diversify their funding base, Russian banks have
raised almost $26 billion via Eurobond deals this year,
according to IFR, one solution at a time when competition for
deposits is pushing rates higher.
But the growing reliance on foreign borrowing has also
raised questions about their ability to continue fundraising,
and poses risks if global markets shut down in the event of a
worsening of the global financial turmoil.
($1 = 31.1625 Russian roubles)
(Additional reporting and writing by Katya Golubkova; Editing
by Jason Bush and Catherine Evans)