After the invasion of Ukraine, the Russian Federation continues to pay a high price in the economic and financial sphere, and the war itself for the successor of the USSR, the further, the more it resembles an adventure. The Russian banking system is preparing for communism. The most severe banking crisis in the history of the Russian Federation is on the agenda.

Few paid attention to the fact that since the beginning of the armed aggression, the Moscow Exchange, Russia’s main stock market, has not been able to open. The financial mega-regulator – the Central Bank of the Russian Federation – has postponed the opening of the exchange several times, and once again it became known that the Moscow Exchange will also not be able to open from March 14 to March 18. This news spread all over the world media. However, what is behind this event, almost no one began to understand. But in vain: it can be said that after the tragicomedy with the ruble exchange rate and the frozen gold and foreign exchange reserves of the Central Bank of the Russian Federation, the deadlock on the Moscow Stock Exchange can turn most of the banks of the Russian Federation into a “liquidation mass”, and a banking crisis unprecedented for the Russian Federation will break out in the country.

With the opening of the Moscow Exchange, a hole will be drawn in the amount of approximately 10-12 trillion rubles

The mathematics of disaster. As of 02/01/2022, all customer funds on the accounts of Russian banks were estimated at about 86 trillion rubles, of which about 30 trillion rubles were in Sberbank of the Russian Federation. It so happened that on February 1, Sberbank itself invested a little in non-government securities: only about 400 billion rubles in corporate bonds and 33.3 billion rubles in shares. The remaining 56 trillion rubles of liabilities of the banking system of the Russian Federation with the opening of the Moscow Exchange will draw a hole in the amount of approximately 10-12 trillion rubles.

Imagine the balance sheet of a bank with deposits as liabilities and loans + securities as assets. And now, after the opening of the Moscow Exchange, in one day these credit institutions will need to write off from the balance sheet from 10% to 40% of their assets.

The intrigue is that some of the banks will survive the opening of the Moscow Exchange, while others will not be saved, and this will be only the first wave of defaults in the banking sector. Of course, those banks that actively invested in non-state securities, especially sanctioned oligarchs, will go under the knife. In this stock fire, 3 trillion rubles in the accounts of the population, invested mainly in stocks and bonds, will also burn out, and along with them about 5 trillion more money from non-state pension and banking investment funds.

But the crisis in the banking sector will not end with the opening of the Moscow Exchange. The opening of the exchange can only be compared with the salvo of Aurora, which will herald the beginning of the banking Armageddon. Already now, the “sanction meat grinder” has begun to work imperceptibly.

First, by raising the rate to 20%, the Central Bank of the Russian Federation automatically affected the level of rates in Russia. For example, which of the individuals will buy bonds of some Rospotrebsnabsbyt, if rubles can be placed in Sberbank at 18% per annum. Those. new issuers need to be offered new, higher yields. What about old bonds? They will fall in price, and the fall in this price will need to be written off the balance again and a reserve formed for it. Moreover, the owners of not only corporate bonds, but also government securities of the Russian government faced this interest rate risk.

For all the vileness of the situation, it must be admitted that the Russian economy will complete the first quarter almost according to plan.

Secondly, two related fundamental disputes are currently underway in the expert community. The first of them is about how much the Russian economy will fall? Estimates range from 8% to 30% for 2022. The second dispute is about how much the sanctions will block the sale of Russian oil: by 50% or 70% of the annual volume. Actually, revenue from oil and gas is one of the keys to predicting the dynamics of Russia’s GDP. I believe that the key to the forecast of the annual decline in the Russian economy remains not so much the percentage of sales of the annual volume of oil, but the speed of curtailing the war in the direction of negotiations (diplomacy).

Despite the vileness of the situation, it must be admitted that the Russian economy will finish the first quarter almost according to plan, but April (with a 98% drop in container traffic, growing unemployment and the inevitable start of defaults in the banking sector) will open the gates to economic collapse. If the Kremlin has time to realize that in the modern world hailstones, planes, guns and tanks do not solve everything, then maybe, with a good mood among the authorities of the US, EU and Japan, 2022 will cost the Russian Federation minus 10% of GDP. If the confrontation continues, then even minus 20% is not the limit of the fall.

Moscow is well aware of how the opening of the Moscow Exchange may end

As world experience shows, a drop in GDP by more than 10% usually causes a sharp deterioration in the quality of the loan portfolio of banks and provokes an acute banking crisis. In other words, those Russian banks that do not die after the opening of the Moscow Exchange and the “thinning” of their Federal Loan Bond (OFZ) portfolios due to rising interest rates will certainly die from the credit crisis. As a result, Russia will get what it started with in the 1990s: a banking system with one bank, Sberkassa. But even this savings bank may also not survive the credit crisis, and then part of the Russians’ deposits will simply evaporate, as was the case during the collapse of the USSR.

Of course, Moscow is well aware of how the opening of the Moscow Exchange could end. Spying on the forums of traders, I was surprised to find that some of them firmly believe that the Moscow Exchange from the collapse of who knows what March 2022 can be saved by a “quick victory in Ukraine”. And, in my opinion, the only thing that can save the financial system of the Russian Federation from collapse is the return of the conflict to the diplomatic channel with the prospect of lifting at least part of the sanctions. The Russian authorities, apparently, do not agree with me and continue to carry heresy, inventing all sorts of anti-sanctions measures and reporting to the authorities that they can prevent an economic catastrophe.

The Central Bank of the Russian Federation is simply playing for time, postponing the first wave of defaults in the banking sector

The first measure from the Central Bank of the Russian Federation is to prevent the Moscow Exchange from opening. For 2 weeks now, accountants in banks and investment funds have not known how much the securities in their portfolios cost, which means they cannot even draw an approximate hole that they will have in their balance sheet after the opening of the exchange. Those. The question was decided to be postponed. The second measure is that credit institutions were allowed to publish reports with selective data, hoping that the public will learn about the bank’s problems later, when “everything is in order.” In both cases, the Central Bank of the Russian Federation is simply playing for time, postponing the first wave of defaults in the banking sector.

The Moscow Exchange itself began to conduct educational work with issuers, trying to focus their attention on the fact that now is the best time to buy back their own shares from the market. In parallel, the exchange stock market is asked to support the Ministry of Finance and the National Wealth Fund of Russia (FNBR). Those. the market is not only calmed down, but also resources are being sought to fill it. The measures would be effective if there were no other sanctions and pressure on the entire economy of the Russian Federation, including the oil sector.

Therefore, so far, most analysts agree that the Central Bank of the Russian Federation, postponing the opening of the Moscow Exchange, is simply postponing the inevitable. The time dilation strategy itself is, in principle, reasonable, especially if you believe the propaganda of the Russia 24 channel. But the real state of affairs is that the more the Central Bank of the Russian Federation delays the opening of the Moscow Exchange, the higher the likelihood that after consultation on the “best opening time” of the Central Bank of the Russian Federation it will already be necessary to apply to the Armed Forces of Ukraine.

Vitaliy Shapran, Member of the Ukrainian Society of Financial Analysts

(C)UNIAN 2022