Russian firms at risk from U.S. Fed stimulus withdrawal: central bank

Tue Dec 24, 2013 8:55am EST
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By Oksana Kobzeva and Maya Nikolaeva

MOSCOW (Reuters) - Russian banks and companies may face higher money market rates or a weaker rouble due to the U.S. withdrawal of monetary stimulus, Russia's central bank warned on Tuesday, highlighting a potential risk to heavily indebted firms.

The U.S. Federal Reserve last week said it would begin reducing the amount of money it pumps out every month, leading investors to pull out of high-yielding assets and central banks in emerging markets to act to stem currency slides.

Russia's central bank may also face a dilemma as it moves to inflation targeting and aims to make the rouble float freely by 2015. Capital outflows may prompt it to counteract the weak rouble by letting interest rates rise, or to allow the rouble to depreciate but risk higher inflation - which could hurt companies with high debt.

"Although interest rate risks of non-financial organizations as a whole are limited, a rise in the level of interest rates may lead to a significant reduction in the financial stability of most indebted enterprises," the central bank said.

Indebted Russian metals and mining companies which have been affected by a growth slowdown in China and stagnation in crisis-hit Europe include Rusal (0486.HK: Quote) and coal miner Mechel (MTLR.MM: Quote).

Higher interest rates may hurt companies' profitability and make it harder for them to service foreign debt, which grew by over 20 percent in the first 10 months of 2013 to $640 billion, the central bank said.

It could also cause a decline in banks' combined capital adequacy ratio (CAR), which is required to be a minimum of 10 percent, although the banking system as a whole is resilient, it said.

The central bank estimates that any dramatic reaction to the Fed tapering - such as a 25 percent fall in Russian stocks, a 200 basis point rise in the sovereign debt yield or a 350 basis point rise in corporate debt yields - could see a decline in banks' CAR to 12.1 percent from 13.4 percent.   Continued...

A view of the Russian central bank at night in Moscow December 8, 2011. REUTERS/Denis Sinyakov