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. Last Updated: 07/27/2016

Study Says Assets Key To Trouble

The liquidity crunch of August 1995 has passed, but the specter of a new crisis continues to haunt the banking industry, because Russian banks are overburdened with non-working assets and bad loans.


The Moscow Carnegie Center recently published a study on Russian banks that shows why.


"There is a structural disproportion. ... Russian banks have mostly long-term assets and short-term liabilities," said Mikhail Dmitriyev, head of economic research at the center.


The study's figures are from the start of 1995 but the picture remains roughly true today: Non-working assets make up nearly 60 percent of all assets of the 10 largest Russian banks as compared to 18 percent for U.S. banks, 10 percent for Japanese banks, and 4 percent for German banks.


The bulk of Russian bank's non-working assets are deposits in Central Bank correspondent accounts kept for unexpected payments, and also cash holdings for short-term liquidity, mostly currency denominated and therefore unprofitable in the face of the steady appreciation in the ruble's value.


Loans account for less than one third of assets of Russia's 10 largest banks -- less than in Germany (58 percent) and in the United States (55 percent), but roughly the same proportion as in France and Italy.


This makes it seem like loan risk is small, but in fact Russia's banks are seriously troubled by bad loans making up a large proportion of their credit portfolios, a fact reflected in a reliability rating of Russian banks published earlier this week by Izvestia.


"The main sensation of today's rating ... is the extremely low reliability score of several large and influential financial institutions such as, for example, Uneximbank or Rossisky Kredit," the paper wrote.


According to Izvestia, the main reason for this is a large share of "risky loans," primarily to other banks, in their credit portfolio and the low level of "liquid assets."