Moscow, 17 November 1998 (RFE/RL) -- Yesterday marked the beginning of a critical test period for Russia's troubled banking sector. A self-imposed three-month moratorium on bank debts to foreign creditors expired over the weekend, and now is the time when Russian banks must start paying off their debts.
On August 17, former Prime Minister Sergei Kiriyenko devalued the ruble, defaulted on domestic debt payments and, at the same time, decided to impose a 90-day moratorium on repayments of foreign commercial debt.
Speaking on ORT Public Television (Nov.15), the new Russian Central Bank Chairman Viktor Gerashchenko called November 16 "D-Day." He said "nervous creditors can (now) press their claims against Russian banks that borrowed (their) money."
Gerashchenko also declared that the government does not have the money to help commercial banks meet their obligations to Western financial institutions. Confirming an earlier statement by his first deputy, Andrei Kozlov, Gerashchenko said Moscow is not considering any extension of the 90-day moratorium on the payment of debts.
Clearly concerned about their inability to service the government's debt, officials have cautioned that it would require more than $8 billion to rescue the country's banking system. Last week, Deputy Finance Minister Mikhail Kasyanov said forward contracts (eds: contracts for future foreign-exchange deals) were dropped from negotiations between Moscow and its creditors. The Russian government owes some $15 billion on defaulted government bonds.
Just to service its foreign debt next year, Russia is due to pay $17.5 billion. Kasyanov said that the Russian government will seek to hold new talks with foreign creditors in order to defer repayment of its foreign debt "for one or two years."
Last year, Russia's largest commercial banks borrowed heavily abroad in exchange for currency forward loans that expired this summer, when the country's financial crisis reached its peak. These banks enjoyed a temporary delay from their foreign debt payments during the moratorium.
But now that the government has made clear it will not take responsibility for the $6 billion Russian commercial banks owe to foreign counterparts on forward contracts, many of them are expected to default.
Financial analysts estimate that, in addition to what these large commercial banks owe, other Russian banks are indebted to foreign creditors for an additional $6 billion. They also say that both numerous creditor lawsuits and a wave of defaults are imminent.
Bloomberg Financial News quotes analysts in Moscow as saying that a freeze on accounts and the seizure of the largest banks' assets are likely soon. Andrei Ivanov, a banking analyst at Troika Dialog, told the news agency that banks linked to large financial groups are likely to experience severe problems in upcoming debt negotiations because foreign creditors will be concerned that the groups' directors are more interested in saving their industrial assets than the banks they own.
Deputy Central Bank Chairman Kozlov says that 720 commercial banks, close to half of all in the country, will be allowed to fail. But the Central Bank has refused to reveal the names of 18 banks it has included on a list it has prepared of so-called "socially and economically important banks." These banks are likely to be bailed out as the government moves to restructure the banking system.
Chairman Gerashchenko said (Nov. 15) that the Central Bank would only support those banks that can insure debt settlements and retain what he described as "the skeleton of a banking system." He named among the larger banks that might survive only SBS Agro (Russia's largest private bank), Menatep and Most Bank. Gerashchenko placed Inkombank, once Russia's third-largest bank in terms of assets, in a lower grouping which is unlikely to survive. Inkombank's license has already been withdrawn and other banks will have to fight through courts for their survival.
Bloomberg also reports today that some banks announced they have started appealing to foreign creditors to reschedule their debts. The agency quoted an official at Uneximbank, Vladimir Gudilin, as saying the bank has created a committee with outside legal and financial consultants to help in talks with creditors. Uneximbank owns an estimated $1.44 billion in forward contracts. Since August 17, at least four Russian banks, including Uneximbank and Inkombank, have had their accounts blocked by British and French courts because of non-payment.
Even those Russians who did not hold their savings in commercial banks are following banking development closely. One reason for this scrutiny is that, as the banks scramble for dollars to pay off their debts, the ruble rate is likely to fall again.
Yesterday (Nov. 16), the ruble exchange rate was almost 17 (16.8) per dollar. Finance Minister Mikhail Zadornov has said the government expects the dollar exchange rate to be at about 20 or 21 rubles early next year. But some officials said today it could fall to 20 to the dollar even before the end of the year.