Russian banks will need tight control and pruning

Subject

Measures to keep Russia's banking system sustainable.

Significance

In 2015, the majority of Russian banks recorded operating losses, with the exception of Sberbank. Banks had to repay foreign currency-denominated loans whose cost rose as the ruble fell in value. Access to further foreign loans was severely constrained by Western sanctions, the cost of domestic borrowing was high and consumers' real incomes declined. The Central Bank of Russia (CBR) continues to support the sector by offering refinancing facilities and capital support for systemically important banks while shutting down banks engaged in high-risk activity.

Impacts

• Western sanctions continuing into 2017 will worsen investor perceptions of risk.
• CBR intervention will avoid a collapse in depositor confidence.
• Geopolitical isolation will limit banking sector development.