Banks Started to Experience Liquidity Shortages

On the face of it, the dynamics of the main indices of the banking sector may appear to be fairly well-balanced. In the past two to three years, the ratio of the bank’s aggregate assets both to GDP  and the domestic demand remained stable (75% to 76% and 81% to 83%, respectively). Though the quality of the credit portfolio is not yet restored to the pre-crisis level, it is gradually getting better. In 2012, the share of overdue loans to individuals fell fr om 5.3% to 4.6%; while in the corporate lending segment it still remains at the level of 5.0%. So, for the first time in the long period the quality of loans to households has formally became better than that of loans to corporate customers.

On the other hand, there is a number of indicators pointing to the fact that fundamental problems still remain in the banking sector. One of the risks is a potential accumulation of poor quality loans on the retail market; such an accumulation is inevitable with rapid growth in accounts payable.   The other risk consists in outflow from the banking sector of funds which form the money supply, which situation implies a shortage of resources for sustained credit growth. The above problem may result both in liquidity shortages of the banking sector and its higher dependence on the short-term refinancing by the Central Bank of Russia.  

As of September 1, 2012, there is a gap of Rb 1.7 trillion between bank loans to companies and households and customers’ account balances and deposits. In absolute terms, that level is comparable to that of autumn of 2007, that is, a period of active credit boom which preceded the 2008 crisis. As regards assets of the banking sector at present, the “credit shortage” amounts to 3.7%, which is equal to the index of the first six months of 2006. However, growth rates of that gap are rather high. So, in January-November 2011 the ratio of the gap between the loans and deposits to the assets increased by 5.3 p.p., while during eight months of 2012, by 5.7 p.p. According to our evaluations, even after the December inflow of budgetary funds in the economy the banks’ resource base will fail to amount to the value of the credit portfolio and the credit deficit will remain at the level of about 1% of the aggregate assets of the banking sector.  

As a result, there is a situation wh ere a rather active development of lending to the non-financial sector is accompanied by a stagnation of both the demand on money and the M2 money supply. In our view, at present money indices appear as lead indicators   suggesting that the low rate of inflation will still prevail with a sharp drop in economic growth rates. In addition to that, a decline of economic activities will be accompanied by problems in the banking sector. Expansion of the money supply and acceleration of the rate of inflation will not result in a revival of economic growth this year, but may prevent problems in the banking sector, thus preserving theoretical opportunities of economic growth in 2013.   

М.Yu. Khromov, Researcher of the Structural Research Center