After struggling to gain momentum throughout most of the year, the Russian economy expanded by 4% y/y in 2010, well below its pre-crisis trend. Despite significant government support, the unwillingness of Russian banks to lend constrained the recovery, especially in fixed investment. However, by late 2010, Russian banks were enjoying something of a revival, as credit conditions improved throughout the year and asset quality slowly stabilized.
Extensive fiscal stimulus following the sharp economic downturn helped evaporate Russia’s budget surplus. In mid-2010, government officials announced a five-year, US$59 billion privatization program covering nearly 900 state-owned firms. While details are still scarce, the government plans to sell stakes in ten major firms by 2013, including the two Russian banking giants VTB and Sberbank, […]
The health of Sweden’s banking system is increasingly coming under the microscope given its exposure to the rapidly contracting Baltic economies (Estonia, Latvia, Lithuania). Swedish banks’ outstanding lending to the three Baltic states is around 20% of GDP (US$ 60 billion), mostly in foreign currency. In June, Sweden’s central bank and the financial supervisory authority (FI) both released stress test results, which showed all the Swedish banks weathering the Baltic malaise. However, the central bank and FI’s stress test scenarios were not especially stressful and may soon start looking more like base case scenarios.
Bottom line: While Swedish banks should all meet minimal capital requirements (4% Tier 1 capital ratio) in a stressed scenario, spiking defaults in the Baltics will significantly erode the capital positions of Swedish banks exposed to the Baltic region. Such erosion will tighten lending both domestically and in the Baltics, further cutting into Sweden’s already negative growth outlook for 2009.