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. Last Updated: 07/27/2016

Midsized Lender Rethinks Mortgages

VedomostiA billboard advertising mortgages. Sources say Moskommertsbank will not issue any new mortgages until October.
Midsized lender Moskommertsbank has stopped issuing new mortgages until October in the wake of the U.S. subprime mortgage crisis that has led to a global liquidity squeeze, Vedomosti reported Wednesday, citing sources close to the lender.

Alexei Godovanets, CEO of Moskommertsbank, sought to downplay the reports. "We haven't stopped issuing mortgages," he said. He added, however, that the bank was monitoring the situation.

The bank earlier said some large transactions had been suspended while they reexamined solutions.

Moskommertsbank, which is 52 percent owned by Kazakhstan's Kazkommertsbank, has a high exposure to the Russian mortgage market, with mortgages accounting for more than 90 percent of its retail portfolio. As of July, it had more than 29 billion rubles ($1.1 billion) in mortgage loans.

"Moskommertsbank is not very big and has huge exposure to one particular area," said Natalya Orlova, a banking analyst at Alfa Bank. "This does not mean that the largest Russian banks will have the same problems. They have much more diversified lending structures."

Global liquidity problems have triggered a local liquidity crunch, said Mikhail Galkin, an analyst with MDM Bank. "The most efficient tool in preparing for a liquidity stress is to stop issuing new loans and to find financing against the existing loan book."

Like its Kazakh parent bank, Moskommertsbank is heavily reliant on funding on capital markets. The U.S. subprime crisis has meant that local banks are facing tougher conditions for tapping into international markets.

Mortgages account for just 1 percent of gross domestic product in Russia, compared with 5 percent in Kazakhstan, and about 40 to 50 percent in the West.

Austria's Raiffeisen, which offers mortgages in Russia alongside a more diversified range of lending services, said it was not overly concerned by the U.S. events. "I don't see any showstoppers at the moment," said Roman Vorobyov, head of consumer banking at Raiffeisen. He added that the bank had no plans to raise interest rates on its mortgages in the short term.

Vladimir Gasyak, head of mortgages at Home Credit and Finance Bank, said it also did not expect to see any effect on its operations. "But it would be logical to see the reduction of high-risk programs in some banks," he said.

U.S. housing market concerns had an impact on Russian stocks this week, with shares opening lower on the MICEX and RTS exchanges for a second day running. RTS closed down 0.3 percent Wednesday, while MICEX edged down 0.1 percent.

"The markets are very jittery, but we feel that Russian financial stocks are fairly well protected," said Tom Mundy, a strategist at Renaissance Capital. "Kazakh banks have in general been much harder hit by this subprime sellout."

Ludomir Mitov, deputy director of the European department at the Washington-based Institute of International Finance, said if the liquidity crunch had come at a time of a reduction in oil prices or a slowdown in economic growth, the impact in Russia could have been much more serious.

"This is a warning sign to policymakers to get prepared," he said.