Page 31 - RusRPTJul19

4.3.2 Corporate profits dynamics
The Central Bank of Russia has expressed concerns about the rising concentration of debt in the hands of Russia's largest companies, which may threaten the banking system, in its most recent review of financial risks.
Attempts to deflate the lending and borrowing bubble are crucial if Russia is going to ride out what increasingly appears to be a global recession in the making. In the case of Russian firms, the natural resource export sector is really the concern. If demand drops significantly for key exports or dollar-linked prices fall again, the relative indebtedness of firms borrowing in rubles will most likely worsen. And any slowdown in repayments to banks will also interact with macroeconomic effects on consumers whose wages aren't growing. Debt is a story to watch this summer.
Between January 1, 2016 and January 1, 2019, large firm borrowing grew 69% concentrated in 92 companies. The bank is considering applying macroprudential safeguards in the form of additional risk coefficients for future lending to raise the costs of further borrowing.
Starting October 1 this year, shifts in income/payment parameters for lenders will reduce the rate of unsecured lending to consumers, but likely cost banks active in the consumer lending market 2.5 - 3.5% of their capital. Legal entities were spending roughly 9.9% of their revenues on debt servicing as of January, nearing the 2015 peak of 10.4% and triggering particular concerns given the rising market power of Russia's largest firms within the economy.
31 RUSSIA Country Report July 2019 www.intellinews.com