Russian central bank warns of European crisis fallout
Russia's central bank on Monday urged the country's finance houses to sell stocks and diversify their portfolios in preparation for another European market implosion in the months to come.
The bank said it had conducted a stress test showing the country's banks losing 351 billion rubles ($11.9 billion, 8.4 billion euros) from a 20 percent decline on the main European exchanges -- a figure equivalent to more than six months of industry profits.
"The main foreign markets threat is not coming from the US and its low (debt) rating, but from the European market," said Sergei Moiseyev of the central bank's financial stability department.
"Our equities market has been integrated into the world system for a long time, and any swings there will reflect pretty strongly," the Prime news agency quoted Moiseyev as saying.
Investors and analysts most recently raised alarm about Russia's financial stability after the country's number two bank VTB had received a massive state bailout to cover unexpected losses from its acquisition of a smaller rival.
The bailout came as a big blow to the government because VTB's supervisory council included Alexei Kudrin -- a hawkish finance minister who approved the takeover without apparent knowledge of the smaller bank's problems.
The Russian financial sector lost more than 10 percent of its worth in the days following last month's historic first downgrade of US debt by the Standard and Poor's ratings agency.
But the bank said it was not running a similar test for US losses because the risks there were less immediate.
Monday's report said that Russian banks would be especially sensitive to European market volatility because -- in times of economic uncertainty -- their portfolios would mostly be made up of securities rather than loans.
"We would prefer to see the banks holding low-yield but stable credits rather than security assets that are subject to the European crisis," Moiseyev said.
Analyst said that economic turmoil in Europe could also lead to a shortage of cash flowing through the system and an inability by larger banks to secure long-term loans.
Short-term borrowing is often done on the local bond market but "Russian banks make their long-term loans abroad," Vasily Slodkov of the Higher School of Economics told the Gazeta.ru website.
Moiseyev said Russia's largest 30 banks had parked about $20 billion earned since the start of the year abroad as a risk-avoiding maneuver.
"This trend is somewhat concerning," RIA Novosti quoted Moiseyev as saying at a banking forum in the Black Sea resort town of Sochi.
© 2011 AFP