THURSDAY, APRIL 10, 2014 BUSINESS Surge in Russian capital outflows adds to woes

MOSCOW: A surge in capital outflows and warnings it could intervene further ing incentives to invest in large opera- billion, was the highest since the fourth reduction compared with the previous from underscores how interna- in . tional activities by Russian companies,” quarter of 2008, while banks’ foreign official 2014 growth forecast of 2.5 per- tional tensions over Ukraine are adding “Of course it’s the conflict with she said. assets reached $35 billion, also close to cent, and are also below last year’s disap- to the woes of Russia’s already strug- Ukraine and the uncertainty about Recent surveys suggest that business levels last seen in the 2008 financial crisis. pointing growth rate of 1.3 percent. gling economy. Russia’s central bank has potential (military) operations in eastern confidence is now the lowest since 2008. “Of course we see substantial increases in The Economy Ministry estimated that published balance of payments data Ukraine that triggered such big out- Reacting to such trends, President currency purchases by Russian residents for the year capital outflows would reach that showed an estimated $63.7 billion flows,” said Alexei Devyatov, economist Vladimir Putin has called for the busi- as a reaction to ruble weakness - which $100 billion, implying that the bulk of in net capital outflow in the first three at Uralsib. ness climate to be improved “substan- was triggered by capital outflow. These this year’s outflows have already months of this year - as much as the $63 Alfa Bank economist Natalia Orlova tially” and “at an accelerated pace”, things are self-supporting in a sense,” said occurred. billion in outflows seen during the said the Ukraine crisis was only one fac- though previous such exhortations have Uralsib’s Devyatov. However, some other forecasters are whole of 2013. tor, as outflows were already strong delivered scant results. The surge in capital outflows was gloomier. The World Bank warns that the The bank first published a figure of even before the threat of Russian mili- among the factors leading the Economy total for the year could reach $150 billion. $50.6 billion on Tuesday, but later tary intervention in Ukraine. Flight to dollars Ministry to cut its official economic “Looking forward you may take two included an adjusted total to add $13.2 Domestic investment by Russian VTB Capital economist Vladimir growth for this year, joining a wave of views,” said VTB Capital’s Kolychev. “The billion in forex transactions between companies fell by 7 percent in January Kolychev said the outflow was being organizations that have slashed Russian first one is that the peak of dollarization is banks and the central bank, which ana- and by 3.5 percent in February, com- driven by companies and ordinary growth forecasts because of the Ukraine over, which means that the ruble should lysts say provides a clearer picture of pared with a year earlier, illustrating households, which have been rushing to crisis. Deputy Economy Minister Andrei stabilize in the next year.” “The opposite total capital flight. The surge coincides how rising capital outflows coincide convert their ruble savings into dollars. Klepach said on Tuesday the ministry view is that we are only in the middle of with slumping investment and a sharp with declining willingness to invest in “The most important factor behind this forecast growth at either 0.5 percent or this geopolitical mess (over Ukraine). deterioration in business confidence, as production in Russia. “Overall the net huge capital outflow was savings dollari- 1.1. percent in 2014 - with the higher fig- That means more pressure on the ruble forecasters slash economic growth fore- capital outflows reflect general concern sation,” he said. Households’ demand for ure conditional on fiscal stimulus steps. as locals continue to run away from local casts after Russia’s annexation of about financial stability, and also declin- foreign currency in the first quarter, $19.6 Both forecasts represent a sharp assets.” —Reuters Gazprom, China close to gas agreement: Russia Deal to boost Moscow’s bid to turn eastwards MOSCOW: Russia’s Gazprom and China may sign gas a year. “Regarding Gazprom’s gas contract, the cent earlier this month in what Ukraine said was a a landmark gas deal next month, a Russian official sides are close to agreement ... The only issue politically-motivated move to punish Kiev for pur- said yesterday, marking some progress in a long- remaining is ... the price,” he was quoted as saying suing closer ties to the European Union. stalled agreement that would boost Moscow’s by Itar-Tass news agency, adding that both sides Bypassing Ukraine by using different pipelines or efforts to turn eastwards away from Western planned to discuss contract details yesterday. “We reorienting trade to the East have become priori- sanctions. The gas supply deal is the Holy Grail for really hope that the contract will be signed in ties for the Kremlin, and could strengthen Moscow after at least 10 years of talks, and if May.” Beijing’s negotiating position on price. signed would mark a victory for President Russia ships around 16 percent of its total Gazprom has been in painstaking talks over Vladimir Putin who has warned the West that crude exports to Asia, while gas volumes are the last 10 years about shipping gas to China and attempts to isolate Russia over its annexation of small, limited to those of super-cooled gas. The has been unable to agree on pricing. Putin plans Crimea would backfire. gas deal would help Gazprom reduce its depend- to visit China in May. Britain’s Economic Secretary to the Treasury Sajid Javid speaking during a Arkady Dvorkovich, a deputy prime minister, ency on exports to Europe, which gets around a Putin will hold a meeting with his government news conference in London. Maria Miller, the minister who oversaw future was quoted as saying during a visit to China that third of its gas needs from Russia with the bulk of on energy cooperation with Ukraine yesterday. regulation of Britain’s newspapers, was replaced yesterday by Javid, consid- Gazprom and China were close to reaching agree- transit coming via Ukraine. Some local media have said he may suggest limit- ered a rising star of the Conservative Party, after she quit her cabinet post ment, paving the way for the construction of a Moscow is again at odds with Ukraine over gas ing gas supplies to Ukraine, with owes Gazprom following a row over expenses linked to a mortgage. —AFP pipeline to carry 38 billion cubic metres (bcm) of payments after Gazprom hiked prices by 80 per- $2.2 billion in gas payments. —Reuters BoE set to hold Sanctions trump patriotism record-low rates for Russian banks in Crimea LONDON: The Bank of England is forecast ing rates. The unemployment rate has held today to freeze interest rates at a record- steady at 7.2 percent, having fallen to a SIMFEROPOL: In the rush to serve Lack of interest seize Russian assets. Kraiinvestbank from Russia’s low 0.50 percent, amid caution over the near five-year low of 7.1 percent late last clients keen to open ruble Russian officials have lamented They could also make a tidy southern Krasnodar region, just strength of Britain’s economic recovery, year. accounts, staff at the first Russian the lack of interest among banks to profit. “Nature abhors a vacuum. over the Kerch strait from Crimea, analysts said. Britain’s 12-month inflation rate mean- bank to open its doors in Crimea operate in Crimea, which voted to Ukrainian banks are leaving and issues both MasterCard and Visa The central bank’s nine-strong Monetary while slowed to 1.7 percent in February, the have yet to find time to open the join Russia in a March 16 referen- Russian banks are coming. There is and has correspondent accounts Policy Committee (MPC) is also expected to lowest level for more than four years. “With boxes stacked in the entrance or dum the West called illegitimate. a lack of bank services on the in non-resident banks. Genbank maintain its quantitative easing (QE) stimu- inflation falling comfortably below 2.0 per- put up a proper sign. With a majority of ethnic Russians, peninsula, so despite what can and Kraiinvestbank were not lus at £375 billion ($628 billion, 455 billion cent, we expect the BoE to stay on hold Instead they are relying on a plas- Putin hailed the return of Crimea as hardly be called a healthy econo- immediately available for com- euros). Policymakers will hold a shortened today, in line with the consensus, which is tic banner with letters in red saying: a victory, shrugging off sanctions my, banks could still get a healthy ment. The three are not yet able to meeting, yesterday instead of over two likely to have a limited market effect,” noted “Russian National Commercial Bank: targeting close officials and Bank profit,” said Maksim Osadchiy, head fill the space left by Privatbank, days, to allow some members to attend the Barclays analysts. The BoE’s key lending rate Your Russian bank in Crimea!” Not Rossiya, a lender Washington says of the analytical department at which had the largest banking International Monetary Fund’s spring meet- has stood at 0.50 percent since March 2009, that RNCB needs to advertise its is the “personal bank” for his inner ings in Washington. The outcome will be when it also launched the radical QE policy CFB bank. services network in Crimea with announced at 1100 GMT today. to nurse the economy back to health. services. With Ukrainian and Western circle. “With such a lack of bank servic- 339 branches. It closed them in “The April policy meeting is unlikely to “We still think the most likely outcome is banks closing, Crimea’s 2 million But the experience of Bank es, they can bump up prices.” But mid-March. “There was less than rock any boats,” said Rabobank economist that the MPC is persuaded by the weakness people have been forced to deal Rossiya, which has stopped all for- even the smaller banks have some 3,000 hyrvnias on my card to draw Jane Foley. “UK data releases over the past of inflation to tread cautiously and holds with a cash economy since Russia eign currency operations to work exposure to Western systems, my salary at Privatbank. For me, month have confirmed a continued decline off raising interest rates until late 2015,” said annexed the Black Sea peninsula last only with the ruble after being put showing that few institutions can that’s not a great loss, but never- in the number of jobless claimants and a economist Samuel Tombs at consultancy month - an illustration of the eco- on a US blacklist, has made other operate in isolation in an increas- theless it’s not very nice,” said simultaneous fall in the inflation rate. “On Capital Economics. The economy expanded nomic obstacles that might lie balance, there has been little evidence to by 1.7 percent last year, according to recent ahead for a contested region. change our expectation that steady policy downwardly-revised data. However, this Only three Russian banks have is likely to prevail until May 2015 when the was still the strongest growth since before moved to fill the vacuum, the BoE is likely to commence a slow upwards the global financial crisis. GDP grew 0.7 patriotism stirred by President adjustment in the bank rate.” percent in the fourth quarter of 2013 com- Vladimir Putin by reclaiming “an The BoE had last year vowed not to start pared with activity in the previous three inseparable part of Russia” falling lifting rates until the unemployment rate month period. flat in the face of Western sanc- falls to at least 7.0 percent, under a forward Investec economist Philip Shaw added tions that have deterred the coun- guidance policy launched by governor that the shortening of this week’s gathering try’s big lenders. In particular, Mark Carney. However, the bank tweaked suggested that there would be no change many Russian lenders have been its strategy after the rate fell more sharply in policy. He added: “For now with the econ- alarmed at moves by Visa and than anticipated. Under amended guid- omy growing respectably but not roaring MasterCard to stop providing ance, the BoE will now seek to absorb all away, we see it likelier than not that the services, albeit in most cases tem- the spare capacity in the economy as it MPC will avoid tightening policy this year, looks to keep inflation close to a govern- especially with inflation expected to remain porarily, for transactions involving ment-set target of 2.0 percent, before hik- below target over the medium term.” —AFP banks whose shareholders were on a US blacklist. RNCB was the first Russian bank into Crimea after the region’s annexation, hurriedly setting up in Brutal US winter has chilling some of the branches left empty by Ukrainian subsidiaries of effect on prom spending plans Russian state-owned banks, Sberbank, VTB and Bank of NEW YORK: It is still too cold in most were spending less. Indeed, retailers Moscow, that have curtailed their parts of the country to be thinking struggled during the winter of 2014. work in the region. about taffeta, which could be affecting David’s Bridal, one of the largest purvey- It has been followed by two how much teens and their parents plan ors of prom gowns, said that while it has small Russia-focused regional on spending on the prom and when not noted a drop in spending, it has banks whose limited business they do their shopping. Families, on noted a shift in the buying season to be activities - they have few dealings average, expect to spend $978 this year later this year. outside Russia - means they have SIMFEROPOL: Visitors leave the newly opened branch of Genbank in the Crimean capital on the prom, the annual rite of passage “It’s potentially due to weather, and less to fear from sanctions than Simferopol yesterday. Moscow-based Genbank has become the first Russian bank to start oper- for American high schoolers, which is it’s also a shift of Easter and spring break larger financial institutions with ating in Crimea, opening new branches in the Simferopol and , following Russia’s basically just a big dance, according to a coming later in the year,” said Brian international exposure. For annexation of the Black Sea peninsula. —AFP survey released today by Visa Inc. That’s Beitler, executive vice president and Crimea’s small businesses and resi- down 14 percent from last year. chief marketing officer for David’s dents, the lack of options has banks wary. ingly global economy. Kemal Adabashev, owner of a den- Prom spending can encompass a Bridal. Most prom dresses at David’s end translated into long queues at Russia’s top two banks, tist surgery. “It is getting harder wide range of items, primarily formal up costing around $200, Beitler said, hastily furnished branches like this Sberbank and VTB , are yet to start Linked up and harder to do business; prices wear, but also includes flowers, trans- with plenty of bestselling collections at one in the Crimean capital of direct business in Crimea and say Osadchiy said RNCB issues both are rising.” portation, pre-event dinners, hair, just $100. This year’s prom fashion trend Simferopol to open ruble only some branches of their MasterCard and Visa, and has cor- The head of the administration makeup and sometimes hotel rooms. is focused on celebrity couture, particu- accounts. Ukrainian subsidies are working respondent accounts in non-resi- of the Crimean city of Sevastopol, Most of the difference in the spend- larly the “sophisticated” dresses dis- “One of the most pressing there at the moment. Alexei dent banks, but with a very small Dmitry Belik, suggested banks had ing forecast is driven by steep drops played on the red carpet during the problems is the banking system,” Simanovsky, first deputy central balance and turnover. Local media failed their clients in Crimea, criti- among families surveyed in the winter movie awards season. “There’s a Alexander Batalin, chairman of bank governor, said not all banks said the bank was sold recently by cising Raiffeisen Bank Aval for clos- Northeast, whose spending forecast little less bling on the dresses them- electrical tools manufacturer were scared. “There are those VTB subsidiary Bank of Moscow to ing its Crimea branches by April 15. dipped 27 percent, and the South, selves,” said Beitler, although accessories Phiolent, who opened an account which cannot be frightened by two Crimean companies close to Aval has offered its Crimean where it dropped 23 percent. Visa con- remain a big category. at RNCB last week. sanctions - they work only in the new administration. RNCB was clients a choice - either close their ducted a phone survey of 4,000 families Families with income less than Last month, his factory paid its Russia,” he said. “Maybe tomorrow unable to provide details of the accounts by April 15 and lose a in January and February 2014, when it $50,000 said they were going to spend 1,800 employees in cash after its (major banks) will not be there, but reported deal. percentage for the early termina- was particularly cold in those areas of much less than the national average: accounts at Ukraine’s Privatbank I believe that the situation will A second bank, Genbank, tion of their contracts, or wait and the country. Comparatively, last year’s just $733. Last year, that income group were frozen. The company has resolve itself ... in the foreseeable opened its doors on Friday, local then close them at branches in survey was based on a survey of 3,000 was planning to spend more than the been unable to complete an order future, I am convinced there will be media said. With two branches - mainland Ukraine. “Nobody is in the same time frame in 2013. national average. “We hope this dip in for new European equipment. major banks there.” For now the one in Siberia’s city of Omsk and in driving them away from “It’s certainly a possibility that it’s spending indicates that the prom bub- “The banking system is devel- smaller, regional banks may be Rostov-on-Don to the south - and Sevastopol. We are offering all weather related, especially if it follows ble has burst,” said Visa’s Sillin. “It’s just a oping very slowly. There are only keeping the offices warm for when a headquarters in Moscow, the banks in Sevastopol to renew other general retail trends,” said Nat dance, and for parents, it’s an opportu- two banks (that are working) but the bigger banks decide they can bank issues Visa cards and has in their registration, get a licence Sillin, Visa’s head of financial education. nity to teach teens the importance of there are such lines there, they return, once they have a clearer its securities portfolio loan obliga- from the Russian Central Bank Respondents were not asked why they budgeting.” —Reuters aren’t ready to service the new view on Western sanctions and any tions of non-residents nominated and continue operating in demand,” he said. possible legal moves by Kiev to in foreign currency. Sevastopol,” Belik said. —Reuters