Rebuilding Russias domestic capital markets and
banking system is a precondition for economic recovery, senior
market participants have warned.
Johann Jonach, Chairman and CEO of Alfa Bank, one of the
largest private-sector banks, said that the situation had
much improved in recent months.
Blue chip stocks are back to, or close to, their
pre-crisis levels, although of course the main factor here is
the oil price, Jonach told Emerging
We are not back to the high volumes we had on the
stock exchanges, although there has been an uptick in the first
quarter. Inflation is coming under control, which is very
important. And there has been a significant revaluation of the
Jonach acknowledged that the banks task in stimulating
economic recovery was a difficult one. Banks have to play
their traditional role, to support business, but there is far
too little initiative.
They have become far more conservative, focusing only
on lower-risk borrowers. And this will not take the economy
Interest rates are falling, and the central bank has cut the
repo rate to 8%, its lowest ever. This, together with a
significant reduction in inflation, makes a big
difference, Jonach said. But there is more to be
Small and medium-sized enterprises account for only 20% of
GDP in Russia. Jonach said this was far, far too low,
compared to central and eastern Europe for example.
Although efforts were now being made by authorities to boost
lending to SMEs guarantee funds supported by regional
governments, for example these need to be stepped
Jonach added that, as for the business environment more
generally, government has now recognised that combating
corruption and creating a level playing field are the first
priorities but said he was under no
illusion about the difficulties of moving from
declarations to action. Its a monumental task.
Chris Weafer, strategist at Uralsib Bank, told
Emerging Markets said that Russia would never boom
without bringing into play long-term sources of local-currency
finance such as pension funds.
One of the real shocks of the 2008 crisis was its
effect on domestic capital markets, he said. The
fall in oil prices was expected, but the extent to which the
Russian financial system is effectively offshore was an
Both trading volumes and total market capitalisation of
Russias domestic markets are still a fraction of
pre-crisis levels, Weafer pointed out. The RTS index stood at
around 1370 this week, having dipped slightly from April highs
of around 1650 far from the 2500 it reached in May 2008
before the crash.
Weafer said that, once state ownership and business
groups illiquid holdings were taken into account, less
than 30% of the market capitalisation is in free float.
The key for Russia is to establish a capital base, a
strong pool of domestic long-term money. Sorting out pension
fund reform is an absolute necessity.