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Herbert Moos: “Russian banks don’t hold Greek government bonds or Spanish government bonds”

 
21.05.2012

HOST: Now from Europe to Russia. Earlier this month Russian President Vladimir Putin said that his long-term focus for Russia’s economy was to shrink the state’s role and ease reliance on energy exports. With renewed focus on privatization, are there big changes now in store for the country’s banking sector? I put this question to Herbert Moos, the CFO of VTB Group, when I spoke to him earlier today.

HERBERT MOOS: I think structurally, in the crisis, the government took a significant part of that sector, and in many respects it was a required step. I think, clearly, Russia still does not have the same investor representation as many other global banks, so the Central Bank has to spend in and essentially support the banking community. A lot was driven by the fact that the nature of the crisis in Russia, in banking sector in Russia, was not driven by CDOs or ABSes of this world. Russia has never got to that degree of sophistication, it was mostly driven by the fact that banks are conduits for lending, and that’s what Russian economy was mostly requiring. Now that the crisis is over, although, as you see in headlines, it is not quite clear what will come, I think, clearly the overall direction of reducing the role of government in the economy.

HOST: You say the crisis is over, but it kind of isn’t, in terms of Greece at least, and they are still figuring out whether Greece will stay in the Eurozone or not. What was the spillover impact on the Russian banking sector and do you anticipate there to be more of a spillover impact?

HERBERT MOOS: Russian banks don’t hold Greek government bonds or Spanish government bonds. I think if you look at the refinancing rate, which is right now at 8%, you could never justify holding such low-yielding assets, although recently they’ve been pretty high-yielding on the balance sheets. So there’s no real direct impact on the banking, because the assets are not directly linked, but given that Russian economy continues, in its material part, to be dependent on the resources, on commodities, and Russia sells a lot of those commodities to Europe, I think we will have a secondary order impact, where my clients, the corporates that borrow from me, will start seeing slowdown in their revenues, start firing workers, so my retail business starts seeing some of the impact on my corporates. But so far, fortunately, we haven’t. Last year, China became the largest trading partner for Russia, overtaking European Union, so gradually that dependency is weakening. Still, it will be a significant contributor. The ironic part that we are seeing right now is that a lot of Russian corporates, who had access to the European capital markets, seeing the fact that European capital markets are themselves in a state of turbulence, a lot of banks shut down credit lines, European banks shut down credit lines to Russian corporates, so, ironically, right now it actually benefits VTB and Russian banks, because borrowers are of relatively high quality, of very high quality, who traditionally would go for very cheap funding from the West, come to the local banks and work with us. So, ironically, it actually benefits us.

HOST: And that was Herbert Moos, the CFO of VTB Group, who I spoke to a bit earlier today. 


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