Azerbaijan, Baku, March 22 / Trend /
The resolution of banks in Cyprus through a customer deposit levy or some form of burden sharing involving creditors of troubled banks would be unlikely to result in material losses for Russian banks, Fitch Ratings says.
The risks of a deposit levy appear to be receding according to press reports, but the situation remains highly uncertain.
"Where Russian banks have deposit-taking subsidiaries or branches in Cyprus, our base case is that the banks' customers would suffer the majority of losses if a deposit tax or levy is imposed. There is some risk that Russian banks would need to, or choose to, absorb some losses, for example where they have advised clients to place money in Cyprus entities, or where deposits represent indirect intragroup funding from the parent. However, Fitch would expect any such losses to be small relative to the equity of the banks affected," according to the statement.
VTB is the only Russian bank with a subsidiary in Cyprus, Russian Commercial Bank Cyprus (RCBC). At end-2011, RCBC had USD3bn of customer deposits. Assuming these remained the same and were taxed at the highest rumoured rate of 15%, the levy would be equal to only 2% of VTB's equity.
"We would not expect most of this to represent losses for the bank. VTB has announced that its potential losses would be limited to tens of millions of euros, probably related to placements of VTB's non-banking subsidiaries with RCBC," the agency said.
Promsvyazbank (PSB) is the only rated Russian bank with a branch in Cyprus. As with VTB, we would not expect losses, if any, as a result of a deposit levy, to be material for PSB.
Losses could also arise if Russian banks' non-bank Cypriot subsidiaries or related entities - brokerage or other associated companies - have placed cash in Cypriot banks. However, brokers usually make settlements though highly rated foreign banks, so we view the risk of them having significant deposits in local banks as low. Where SPVs are set up for Eurobond issuance, they do not typically use local bank accounts, so servicing of these bonds would be unlikely to be affected if capital controls are introduced in Cyprus.
"Unless interbank deposits are subject to a levy, we believe risks from placements of Russian banks in Cypriot banks are limited," according to Fitch Ratings.
The bulk of these are likely to be related to VTB's funding of RCBC. VTB has indicated that RCBC has a balance sheet of EUR14bn, and we believe most of this is financed by the parent. At end-2012, total placements of non-EU banks with Cypriot banks were EUR12.8bn.
Under a haircut scenario, there is likely to be limited direct risk from Russian banks' loans to Cyprus-domiciled entities, as most of these represent exposures to subsidiaries of Russian (or other non-Cypriot) corporate groups, and have some form of credit enhancement (guarantees or collateral) from non-Cypriot group entities. Some of these borrowers may have deposits with local banks, but any losses would be borne by these clients. Banks' risks only potentially increase if such losses materially reduced borrowers' debt service capacity. We believe this is unlikely as such entities typically do not hold a large proportion of group liquidity on deposit at Cypriot banks, and the levies so far discussed still do not represent sufficiently severe haircuts to undermine borrowers' creditworthiness.
"Russian banks could face significant operational risks and challenges if the Cypriot crisis is prolonged and brokerage and trading counterparties become reluctant to trade with Cyprus-domiciled entities. However, we would not expect the costs of any required restructuring of trading/brokerage businesses to have a substantial impact on the overall performance of any banks affected. Based on statements today from Russian state-owned banks, we also currently view as unlikely a takeover by them of any of the troubled Cypriot banks," the statement said.