Special Issue: 08/09

Russian economy has contracted significantly during 1H 2009 and forecast for the full year are rather negative. Oil prices dynamics and capital outflows play a key role but it is the credit crunch that has strongly affected Russian economy.

Credit and liquidity risk are still in place despite the prompt anti-crisis measures introduced so far by the government and the Russian central bank (CBR) in order to boost liquidity. The major reason of concern is the increasing level of non-performing loans (NPLs). The exact amount is uncertain, ranging from 10% to 40%, due to the different accounting standards used by CBR and by international general procedures.

Underestimating the NPLs correct level could lead to insufficient countermeasures to face the potential evolution of the crisis. Since 2000 Russia has increased the level of foreign reserves. Thus the country will preserve its ability to pay. Nevertheless 2H 2009 will be a tough period for Russian banks, especially medium-size banks, that will be able to survive only with the state support, waiting for a strong recovery in hydrocarbons prices which timing is still highly uncertain.