Private Debt Rises Amid Capital Outflows

CEIC Russia Data Talk: According to central bank data, Russia's private external debt amounted to USD 341.4 billion as of the end of the second quarter of 2013 (Q2 2013), accounting for 48.3% of total external debt. Private external debt is defined as external liabilities of banks and other sectors (non-financial corporations), where the government and the central bank hold less than half of the shareholder voting power. Private external debt level in Q2 2013 was the second highest in the last seven years since the USD 356.5 billion observed during the third quarter of 2008. Private external debt grew by 9.1% in Q2 2013 compared to the same quarter of the previous year. Meanwhile, banks and other sectors have made different contributions to the growth of the total private external debt: banking sector private external debt grew by 4.7% in annual terms, while other non-financial sectors' external debt grew by 10.6%. The private external debt of banks reached USD 82.4 billion in Q2 2013, largely due to increased balances in the current accounts and deposits held by non-residents in Russian banks. However, these debt levels were dwarfed by the banking debt of USD 126.7 billion observed in September 2008, arising from the large share of foreign loans (71.2% of the total banking debt) at the peak of the global financial crisis. The private debt of non-financial sectors during the past four consecutive periods has beaten historical highs every quarter, to reach USD 259 billion in Q2 2013, mainly because of the growth in loans from non-resident banks that comprise 59.9% of non-bank private external debt. The lower annual growth rates of banks' external debt (15.3% from June 2010 to June 2013) relative to external debt growth of other private sectors (26.9% over the same period) saw the reduction of the banking share of private external debt from 25.9% to 24.1%. This corresponds to an increase of private external debt of non-financial sectors, by USD 54.9 billion during the 2010-2013 period, due to increased external funding of Russian corporations (via direct investors and direct investment enterprises). Non-financial sectors' debt liabilities to direct investors contributed 70.1% (or USD 38.5 billion) to the total increase of other sectors' debt. The share of long-term private debt had increased 11% by the end of June 2013, compared to the same period of the previous year, which raised the share of long-term debt to total debt from 83.4% to 84.8%. On the other hand, the decline of short-term private debt (7.8% year on year in March 2013 and 0.5% in June 2013) gives an indication of rising short-term debt repayments and more long-term borrowings. The amount of private sector external borrowing and its subsequent repayment directly affect the balance of Russian capital flows. According to preliminary balance of payments data released by the central bank in early November, the country saw total capital outflows of USD 12.9 billion during the third quarter of 2013, comprising USD 24.8 billion of capital outflow from non-banking sector's less USD 11.9 billion of banking sector capital inflow. Stable growth of the non-financial sectors external debt in year-on-year terms for the past two years contributed to increasing debt payments and capital outflow in the subsequent periods, with an average lag of 3-6 months. The most significant private sector capital outflows over the past three years were observed in the fourth quarter of 2011 (USD 27.7 billion) and in the first quarter of 2012 (USD 24.1 billion). Positive capital inflow of the banking sector during 2012 is associated with the decrease of banking debt in 2012 and with the return of domestic capital from abroad. In addition, increasing political risks (legislation changes and manipulations through interpreting the law in favour of companies affiliated with the state) have made a substantial contribution to capital outflow, especially in the fourth quarter of 2008 when total capital outflow reached a record USD 132.1 billion that was preceded by the record foreign debt of the previous quarter (USD 356.5 billion in September 2008, including bank debt of USD 126.7 billion). By Evgeny Shlyakov Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
22nd November 2013 Private Debt Rises Amid Capital Outflows