On 10 September 2007 the national rating agency RusRating issued a new overview report on “Russian banks in the debt market and bond issue ratings”.
The report analyses trends in a market that has become increasingly important as a source of funds for the Russian banking sector. The volume of bank bonds circulating in Russia is doubling every year, although their share of aggregate liabilities remains modest in comparison to eurobonds. Perceived credit risks are impacting more and more on the market valuation of bank debt, as reflected in rising spreads.
Viktoria Belozerova, a RusRating senior analyst, characterises the situation in the bond market as follows: “Volumes are growing but remain extremely small in absolute terms. The domestic bond market is much less liquid than the market for eurobonds. Signs of a crisis in western financial markets could prompt borrowers to look more closely at opportunities in the Russian debt market. Bond ratings assigned by an independent rating agency provide a way to assess the credit risk associated with any given borrower, and should be based on a qualitative analysis of all risks facing the bank in question, as well as the bond parameters.”
As of 1 July 2007 R1.1trn in corporate bonds were circulating on Russian markets, of which 24% had been issued by banks. One third of all bank bonds have been rated by RusRating.
Some key conclusions presented in the report:
- Assessed credit risk has become a key factor in determining the market value of debt issues.
- The market for Russian bank debt is doubling every year, and one third of all bank bonds issued since the start of 2006 have been rated by RusRating.
- The domestic bond market is becoming an ever more important source of funds for the Russian banking sector, including smaller regional banks.
- Market players do not always evaluate fundamental risks when pricing debt instruments.
- The credit spread on traded bonds is directly correlated with changes in a bank’s credit rating.
- Bond ratings can be useful in forming investment strategies designed to generate arbitrage profits on the Russian financial markets.
The volume of bank bonds
The volume of bank bonds is growing but it is not very high in absolute terms. The Russian bond market has limited liquidity compared to the Eurobond market. Crises on western stock markets may draw attention to the Russian bond market.
The aggregate volume of liabilities increased by more than 72% from the beginning of 2006, the majority of funds coming from the capital markets
Share of aggregate liabilities
As of 1 June 2007 about 1.4% of bank funding came from bonds, up from 0.8% at the start of 2006.
We publish analytical overviews of the following aspects of banking in Russia
To download the full version of research
