Natalya Orlova, Chief Economist from Alfa-Bank, spoke to Russia Today about the problems the Russian banking system is currently facing.

Russia Today: Do you think that the problems in the global market are affecting Russian banks?

Natalya Orlova: Unfortunately, the change in the international environment comes as a sudden and unpleasant surprise to Russian banks because a number of them expected to borrow billions of dollars before the end of the year. I personally was looking for banking borrowing of around $US 20 BLN. And it appears these plans should be reconsidered. The main issue is that in the coming couple of months Russian banks will face the need to redeem some of the borrowing. So this is a question of how they will be able refinance it. In some cases, they will have to slow down their credits in order to pay back their creditors.

RT: MDM bank is saying that 40% of their borrowings come from abroad. Is that the same case with Alfa-Bank?

N.O.: I guess with Alfa-Bank, it’s a slightly lower figure. However, it is true that in the last two years some of the largest Russian banks were trying to diversify from the local market. They were also desperately looking for long-term funding. It’s no secret that on the Russian market it’s difficult to borrow for a long term, and only the international market can provide banks with funding for 3 to 5 or even more years. So some banks were trying to borrow abroad to assure their strong local growth.

RT: What will be the effect on the Russian banking system in general?

N.O.: The Russian banking market is facing liquidity squeezing. Interbank rates are very high, jumping to 10%. It might result in some nervousness. We now don’t see any panic among our clients but it’s true that the general environment remains quite tense. Secondly, as I mentioned, the credit growth might slow down.  

RT: Can Russian banks still make a profit, borrowing dollars abroad and investing them in Russia?

N.O.: I think the main difference between Russian banks and other emerging market countries is that the Russian banks have been trying to avoid exposure to currency risks. In other words, their international borrowings are matched with dollar denominated assets. So they are now much less exposed to currency risks than they were in 1998 or before. But again, if the international market is not able to provide liquidity, the question is how will they fund the potential demand for credits? I personally expect that in the coming months we’ll see some slowdown in credit growth – as some companies will also be looking for credit lines from Russian banks, being unable to borrow internationally. So Russian banks are becoming internationally important as they are the main institutions which will have to provide the Russian economy with the financial resources in the coming months.