Russian flags foreign IT exodus as risk to financial stability

National flag flies over the Russian Central Bank headquarters in Moscow, Russia May 27, 2022. REUTERS/Maxim Shemetov/File Photo
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MOSCOW, Dec 1 (Reuters) - Russia's central bank warned on Thursday of rising risks to financial stability as the departure of foreign companies from the country makes it difficult to import equipment and that could do more long-term damage than export restrictions.

Western sanctions over Moscow's actions in Ukraine have crippled supplies of some crucial products in Russia.

Its impact has been sorely felt in the airline and car industries this year, but the loss of key technology companies, some of whom are still exiting Russia, is set to diminish access to foreign-made software and hardware solutions in the long run.

The central bank regularly highlights risks to financial stability, but in its latest report, published on Thursday, it singled out the technological risk for financial stability for the first time.

"Against the background of foreign companies leaving the Russian market and the problems with importing IT equipment, banks' operational risks have noticeably increased," the bank said.

"Large financial organisations with adequate resources may want to consider the potential of developing their own IT solutions that are independent of external factors," the bank said, urging commercial banks to actively participate in the domestic technology sector's development.

Other industries face strengthening headwinds, too. The G7, European Union and Australia, are set to implement a price cap on sea-borne exports of Russian oil on Dec. 5.

The central bank said most companies in export-focused industries had built up sufficient safety nets in the post-pandemic recovery period and with rising prices for exports.

"However, in the medium term, the risk of their financial situation worsening is growing due to tougher sanctions (including the EU's embargo on deliveries of oil and oil products), as well as lower demand and prices for key goods in the event of a global economic recession," the bank said.

"Sanctions on technology may have a more long-term impact than export restrictions."

Reporting by Alexander Marrow and Elena Fabrichnaya; Editing by Arun Koyyur

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