Finnvera to expand risk-taking in Russia

Finnvera has decided to expand risk-taking in Russia. The repayment period of buyer credits covered by means of export credit guarantees was raised from three to five years, and three new banks were approved for inclusion on the list of banks. Finnish enterprises will find it easier to obtain guarantees for export projects to Russia, since Finnish and other Western financiers prefer credit arrangements to be made with banks. It is deemed that only the largest Russian companies have the prerequisites for making credit agreements without a bank as an intermediary.

Seven Russian banks have now been approved. The repayment periods of credits vary between two and five years.

In line with its guarantee policy, Finnvera has been able to guarantee enterprise risks in Russia. Now the repayment periods of credits can be up to five years in enterprise risks. However, for the enterprise risk to be approved, enterprises must provide data on their financial statements in accordance with the international practice. It is difficult to obtain reliable data; in practice, this limits the taking of enterprise risks.

Short-term credit risk guarantees are granted using the 50/50 risk-sharing, as before. In the main, these guarantees have been used for insuring continuous exports of the sales credit type. Credit risk guarantees can also be granted for individual transactions, provided that the exporter has had a long-term relationship with the Russian enterprise.

The increase in the number of approved banks makes it easier to obtain guarantees. Finnish and other Western financiers prefer credit arrangements to be made with banks. It is deemed that, in practice, only the largest Russian companies have the prerequisites for making credit agreements without a bank as an intermediary.

The bank sector still undeveloped

Compared against Western banks, the Russian bank sector is small and undeveloped. Most of the over 1,300 banks are small financial institutions that lack the prerequisites for diverse banking operations. Even though banks have recently been granting more credits to enterprises, credits account for a mere 14 per cent of the national product - which is a very low figure internationally. The bank sector's balance sheet total is under 40 per cent of the national product. In the other emerging or transitional economies, this figure typically exceeds 60 per cent, and in Western economies it is well over the annual national product.

From Finnvera's point of view, the large credit portfolio concentrations of banks, and the credits granted to their 'immediate circles', are cause for concern. If the economic growth slows down, the quality of the balance sheet may quickly weaken. Banks are particularly dependent on developments in the export sector.

Expanding the deposit base is also a major challenge for Russian banks, owing to the public's lack of confidence in them. The programme drawn up by the Central Bank and the Government for reforming the bank sector is a step in the right direction; the programme has reasonably good chances of success. However, Finnvera estimates that it will still take years to carry out the plan.

The Russian Government has often emphasised the importance of speeding up domestic investments to reform of the national economy. For investments to pick up, it is necessary that the Government and the State Duma continue their legislative work and that the Central Bank keep a tight rein on the bank sector reform. Restoring trust in the bank system is a precondition for more diverse financing schemes. At present, the Russian bank sector cannot meet the financing needs of enterprises to a sufficient extent.

Expansion of the guarantee policy hinges on the growth of the Russian economy

Expansion of Finnvera's guarantee policy hinges on the positive trend of the Russian economy that has occurred during the past few years. The Russian economy has grown briskly, clearly exceeding the growth rate for industrialised countries even during the current slow-down of the world economy.

As an exporter of energy, Russia has naturally benefited from the high price of oil. Alongside the current account surplus, the State Budget has shown a surplus since 2000. The currency reserves have already exceeded the level of USD 55 billion, which is almost sufficient to cover the country's total imports. For many yeas running, the real value of the rouble has been rising. Citizens' income level and buying power have improved. The only flaw in the economy would seem to be the rapid inflation, which is partly explained by the Government¿s decisions to raise the service fees charged by the public sector. to a level corresponding to the costs incurred.

Stabilisation of the macroeconomy is an important milestone on the way from a centrally controlled system to the market economy. However, long-term sustainable growth in Russia requires that the Government take measures to increase economic diversity, from a production system leaning on raw materials towards the manufacture of processed products.

For further information:

Topi Vesteri, Director, Major Customers and Export Credit Guarantees, tel. +358 (0) 20 460 7238
Raija Rissanen, Specialist, tel. +358 (0) 20 460 7276
Jari Mehto, Bank Analyst, tel. +358 (0) 20 460 7248