Weekend Economists' Demeter Film Award Reveal January 23-25, 2015

[Demeter]

11. Russia faces $40 billion battle to stave off banking crisis

https://finance.yahoo.com/news/russia-faces-40-billion-battle-154110107.html

Russia may have to spend more than $40 billion this year to avert a banking crisis, as the growing likelihood of a sharp recession threatens to pile extra costs on a sector suffering from Western sanctions over Ukraine and a plunge in the rouble. Russian banks are seeing a deterioration in their loan quality, a rise in their risk management costs and increase in their cost of funding, and banking executives and analysts predict things are going to get worse. This represents a major challenge to President Vladimir Putin, who took power 15 years ago in the ashes of a crisis that wiped out the financial system, and whose popularity partly rests on his reputation for restoring stability.

"We expect a contraction in the number of small, medium and large banks this year," Mikhail Zadornov, head of VTB 24, the retail arm of No. 2 bank VTB, said on Thursday. "It will be hard for all banks. The weakest will leave the market," he said.

Russia's central bank has already relaxed regulation of banks, and the government has pledged support of more than 1.2 trillion roubles ($19 billion) this year after spending more than 350 billion roubles in 2014. But analysts say this is a fraction of what is needed. The anti-crisis measures will significantly add to pressures on Russia's international reserves and the budget, which is already forecast to run a deficit of up to 3 percent of gross domestic product this year, hurt most by a collapse in oil prices which is withering the country's export revenues.

"To preserve the status quo, banks may need far more capital than 1 trillion roubles," said Yaroslav Sovgyra, associate managing director for Moody's ratings agency in Russia.