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Russia companies feel no effects of euro area crisis

January 16, 2012, 15:56 UTC+3

But Russia’s banking system will probably stop growing significantly no matter what this year

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LONDON, January 16 (Itar-Tass) — Russian companies have not yet felt the impact of the crisis in the euro area, President and CEO of VTB Bank Andrei Kostin said in an interview published by The Wall Street Journal Europe on Monday.

“Our industry in Russia is not yet feeling the results of the European crisis,” Kostin said. According to him, solvency of Russian companies due to the debt crisis and economic decline in Europe has weakened, and the banking system this year will need additional capital and Central Bank loans.

But, he warns, Russia’s banking system will probably stop growing significantly no matter what this year, and in general the banks, including large state lenders such as OAO Gazprombank, are likely to need new capital and non-collateralised loans from the central bank, last dispensed during the 2008 financial crisis, according to WSJ Europe.

“Liquidity and capital is something we can resolve, but if our borrowers aren't in a position to repay, then we might have a problem. Most of our clients have enough room to lose one-third or half of earnings before interest, taxes, depreciation and amortization and still be in a position to service their debt.”

Russian companies will only lose the bulk of their earnings if a slowdown in Europe combines with uncertainty in the US or China to drag commodity prices down, Kostin says.

“There’s definitely not enough liquidity to continue the growth of the banking sector,” according to Kostin. “The central bank is now lending some money to banks, but mainly using some of the collateralized schemes. I don't think that's enough to provide enough liquidity,” he told WSJ Europe.

“I’m a bit skeptical of the ability of a Russian bank to be successful” in European markets, he says. “There's a lot of competition on the part of the Western banks; on the other hand, maybe politically, after the Soviet era, it's still not very easy for a Russian bank–and state-owned in particular–to do business in those markets. Of course, the economic environment is not very favourable in markets like Western Europe, for example.”

For VTB Group as a whole, net profit in 2012 will be more than 100 billion roubles, and the bank “might even reach” a goal of between 160 billion and 180 billion roubles of net profit in 2013, Kostin said in the interview to WSJ Europe. The bank’s shares are languishing at less than half the 2007 initial public offering price, and Kostin pledged in 2010 to boost them back to their IPO level in 2013.

“There is very little we can do now to influence the share price because any news from Europe or America means much more than news coming from Moscow,” he says. “There is definitely a decoupling between the results of the bank and the share price.”

According to WSJ Europe, the low share price is discouraging the bank from raising new capital, although the Russian government raised $3.3 billion last February by selling a state-owned stake.

“We are still traded probably slightly above or around one time book value. The market is weak, the market is paralyzed, the market is quite cheap for all assets. Europe banks need probably about 200 billion euros in capital, so there is a big competition for this,” he says.

“We have enough capital to live through 2012, even fulfilling our program for growth. But if and when we see the opportunity, either to sell a government stake or to raise new capital, we will be there. At the moment we have capital adequacy of more than 11 percent. We are watching it very carefully.” Analysts have voiced concern about VTB's capital levels, while rival Sberbank is seen as having excess capital, according to the publication.


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