Russia’s Banking Sector Still at Risk despite Bailouts, World Bank Warns

The banking sector in Russia is stabilizing but remains at risk despite recent state bailouts of Russian banks totaling tens of billions of dollars, the World Bank has said, according to Reuters.

The Washington-based financial institution estimated in a scheduled report dated June 10  that state-owned banks now account for 62 percent of all assets at Russian banks following the closure of hundreds of lenders in recent years and the rescue of several major financial institutions.

“The banking sector remains afflicted with high concentration and state dominance,” the World Bank said in the report.

The warning comes less than a week after the World Bank, the lending arm of the International Monetary Fund (IMF), cut Russia’s 2019 economic growth forecast to 1.2 percent from a previous estimate of 1.5 percent because of oil production cuts.

While the bank said Russia’s macroeconomic and fiscal buffers were strong, economic growth prospects remained modest.

“Downside risks to Russia’s growth outlook stem from the potential expansion of sanctions, deterioration of financial market sentiment, souring global trade environment and a dramatic drop in oil prices,” the report said.

Russia’s business climate faces stiff headwinds for many reasons, including the economic sanctions imposed by the United States, Japan, and European allies for Moscow’s 2014 seizure of Crimea, along with alleged Russian interference in U.S. elections.

The World Bank projected annual economic growth for the years 2020 and 2021 at 1.8 percent.

“On the upside, national projects aimed at strengthening human capital and increasing productivity, if well-implemented, could positively affect Russia’s potential growth in the medium-term,” the bank said in its report.