Russia shores up domestic banks with $40bn

by Gill Montia

Story link: Russia shores up domestic banks with $40bn

Russia’s finance minister, Alexei Kudrin, has announced that around $40 billion (£27.6 billion) of government money will be injected into the country’s domestic banks, to shore up capital ratios.

In return, Mr Kudrin expects the banks to restore lending to Russian businesses.

The credit crisis sparked large-scale withdrawals of foreign capital from Russia and last year, around $26 billion was pledged by the government to support the country’s leading banks.

In addition to the outflows of foreign cash, the Russian economy has been hit by falling oil and gas prices, rising unemployment and a falling rouble, which has plunged almost 40% in six months.

This week, credit rating agency Fitch downgraded Russia’s sovereign rating by one notch to “BBB” and warned that further cuts are possible.

The new rating is regarded as two notches above “junk”.

According to a report in The Times, Russia’s foreign exchange reserves, which stood at $600 billion in the summer of 2008, have fallen to around $386 billion today.