Russia TOURISM

Russia Tourism

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The global financial market turbulence arising from the US sub-prime mortgage crisis affected the Russian economy over the northern summer. The Russian banking sector managed to avoid serious problems, due to its comparatively low foreign debt and quick action by the Russian Central Bank (RCB).

Russian banks and companies have greatly increased their foreign borrowing in recent years (albeit from a low base) to meet surging domestic demand for loans. This had been possible due to ample world liquidity and Russia’s improved credit rating. Foreign borrowing amounts to only around 15% of total liabilities for the Russian banking sector as a whole, but some banks are much more dependent on foreign funding with such borrowing up to 30%.

The effects of the credit crunch were most acutely felt in late August, when foreign investors pulled significant amounts of funds out of local money markets. According to RCB calculations, US$52.7 bn in net capital inflows in the second quarter of 2007 turned into a net capital outflow of US$9.4 bn in the third quarter.

At the initial signs of liquidity problems in August, the RCB expanded its refinancing activity in the banking sector and sold currency reserves to support the rouble. Some smaller banks, however, struggled to secure the funds required and the RCB was obliged to ease the rules regarding acceptable collateral in response. While the liquidity crisis eased by early September, in future credit growth in Russia may be constrained by tighter international liquidity conditions.

The credit crisis also hit the Russian Stock Exchange (RTS), which lost 5.5% in August, following a 9.2% rise in January–July 2007. In the third quarter several Russian companies, including the large aluminium producer Rusal, decided to postpone Initial Public Offerings (IPOs) indefinitely. This contrasts with the large numbers of IPOs in the first half of the year.

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