Bloomberg News

Russian Liquidity Is Tightening, Citigroup Executive Says

December 01, 2011

Dec. 1 (Bloomberg) -- There is a tightening of liquidity in Russian banking, according to Citigroup Inc.’s consumer-banking head in the country.

“There is a very distinct and clear tightening of liquidity in this market right now, which is why we have seen deposit rates go up and you have seen wholesale funding drying up,” Citigroup’s Amit Sah said in an interview in Moscow today.

The Russian central bank left the refinancing rate at 8.25 percent on Nov. 25 after two increases this year. Tighter lending conditions and a liquidity shortfall will likely “remain for the medium term,” the bank said. Russian units of foreign banks, including UniCredit SpA, have started lending excess cash to their parents since the middle of the year amid the euro region’s turmoil, using “central bank liquidity” and funds from their Russian operations, Deputy Economy Minister Andrei Klepach said on Oct. 27.

Russia’s largest deposit-taking banks are paying households an average of 9 percent on their top ruble deposits, up from 7.88 percent in mid-November, according to central bank data. The rising rates paid by lenders are a “direct indicator that banks have a problem with liquidity now,” according to Konstantin Nemnov, a portfolio manager at TKB BNP Paribas Investment Partners who helps manage 22 billion rubles ($713 million) in debt.

Citigroup, which set up its retail entity in Moscow in 1993, doesn’t have funding pressure from its parent bank, Sah said. The bank is likely to raise rates soon in line with interest rates, he added, without providing further details.

‘Difficult Environment’

The U.S. lender acquired part of HBSC Holdings Plc’s Russian retail business in June. The bank bought all of HSBC’s loan bank in Russia and assets valued at about $10.7 million.

Citigroup said it would mainly pursue internal growth while looking at similar acquisition opportunities elsewhere in Russia where it is active. Separately, the New York-based bank today named Slava Slavinskiy head of banking for Russia.

“Russia is a very difficult environment with strong local banks like Sberbank and VTB,” Sah said. “We have a very strong model” by focusing on what the bank knows well such as credit and debit cards, wealth management and digital banking.

State-run banks led by OAO Sberbank and VTB Group are expanding their corporate and brokerage businesses, squeezing out international competitors. Britain’s Barclays Plc, Spain’s Banco Santander SA, France’s BNP Paribas SA, Morgan Stanley of the U.S. and Sweden’s Swedbank AB, are among foreign competitors that have either quit or curtailed Russian retail operations since 2010.

Citigroup has no plans to offer car loans or mortgages in Russia, according to Sah. The bank has has more than 3,000 employees, about 55 retail branches and about 900,000 customers in Russia, according to its website.

--With assistance from Scott Rose in Moscow. Editors: Steve Bailey, Jon Menon

To contact the reporter on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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