Russian banks are the canary in the coalmine

The collapsing rouble has caused problems for Russian banks, affecting the country's economy.

The "biggest risk" posed by the sliding rouble is to the banking sector, say Kathrin Hille and Courtney Weaver in the FT. Russian banks have little dollar income, but a large pile of foreign-currency debt amounting to around $192bn, or 10% of GDP. A falling rouble means that the rouble value of this debt rises.

The banks can't offset this significantly with dollars, so their capital shrinks. At the current rouble/dollar exchange rate, the hit to banks' balance sheets could be around 1.25% of GDP, reckons Capital Economics.

Then there are foreign-currency loans to Russian households to consider. These are worth $180bn, or 9% of GDP. As the rouble falls, it will cost these borrowers more to service their loans, which implies a rise in arrears and bad loans.

Finally, if there are further sharp falls in the currency, people could withdraw rouble deposits in order to switch to dollars. If enough of them do this, it could result in bank runs.

It's not all bad news. Compared to 1998, Russia's banks are now better capitalised, and the government is much better off. The central bank has plenty of foreign-exchange reserves to fight renewed sharp falls if it wants to, while its decision to set the currency free also bodes well for sensible policy-making.

Still, says Capital Economics, "the banking system is the place to watch for signs that a weaker currency is causing problems with the real economy".

Recommended

Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022
Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Interest-rate rises mean more pain for stocks
Stockmarkets

Interest-rate rises mean more pain for stocks

Interest rates are rising around the world as central banks try to get inflation under control. That’s hitting stockmarkets – and there is more pain t…
13 May 2022
Why Elon Musk's Twitter takeover could mark the end of the reign of the CEO
Stockmarkets

Why Elon Musk's Twitter takeover could mark the end of the reign of the CEO

The overlords of the corporate world have had their day, says Matthew Lynn. Long live the Technokings!
8 May 2022

Most Popular

The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Aviva: a share for income investors to tuck away
Share tips

Aviva: a share for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
18 May 2022
Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022