Asian private banking and lending eye Russia business
The escalating conflict in Ukraine and sanctions placed on Russia by the EU and the US are pushing private Russian money into Asian wealth centres and encouraging the country’s corporates to seek new sources of funding in the region.
Russian companies and wealthy individuals have been taking action to protect themselves from EU and US sanctions since they started earlier this year, but the latest round announced in late July has intensified their efforts as concern over the impact rises.
| The Cyprus debacle led many Russians to consider alternative destinations, and Asia scored highly
“Russian companies will be concerned about sanctions and how they will intensify,” says Charles Robertson, global chief economist at Russian investment bank Renaissance Capital.
“Will Russian companies look for other sources of capital in Asia? Yes. Western banks may be more cautious to roll over syndicated loans. Asian banks may not be as concerned, but many banks will be cautious about it.”
Russian companies seeking funds will likely have to allay fears over lending to them in the current environment, as well as deal with competition from potential alternative investment opportunities within Asia.
“The Asian investor base is very cautious about investing outside of Asia,” says Robertson. “If they want booming frontier markets, they can go to places like Vietnam, or even Pakistan and Bangladesh. At a time when western sanctions are being imposed on Russia, I would have thought Asian investors would be cautious.”
However, in a country where the government can exert strong influence over corporates, the enthusiasm of the Russian government for increased links with Asia could still encourage companies to seek further lending in the region.
“In Russia, you have got a government saying countries like Britain, France, Italy and the US should be involved in financing Russian companies,” adds Robertson. “But banks in Asia should be involved too.”
Despite a multitude of western players that could potentially lend to Russian corporates in Asia, bankers believe it is more likely to be local banks that step in to fill the funding gap, and it is understood talks are already under way.
“The Chinese banks are going to be a better source for loans for Russian players than western banks,” one senior Hong Kong-based banker at a large western firm told Euromoney.
“That’s the big immediate trend. There is a much greater risk for western banks to do those deals. What we see is Russian corporates that are looking for capital and finding it difficult to get it from Europe and the US. We are seeing signs they are looking to Asia - there are a number of dialogues on that.”
Another senior banker, working for one of Russia’s large state-owned lenders, highlighted the healthy links between Russian financial institutions and some of Asia’s largest potential sources of funds, which could lead to deals being struck down the line.
“Asia is a good option for lending,” he says. “Some deals in Asia should be doable. All these institutions, sovereign wealth funds, Chinese banks, they all have good relations with the Russian banks.”
The public nature of much corporate lending means it rarely remains a secret when companies are scouting around for funds. Private banking on the other hand is a different matter. The waves of private cash that navigate the globe looking for a home often move silently and away from the public gaze, making it difficult to put a monetary value on the flows.
The ever-expanding list of sanctioned individuals in Russia accompanied by a general shake-up in the wealth management industry means Asia is reportedly becoming an important destination for Russian wealth.
“We hear plenty of anecdotal evidence about more Russian money moving to private banks in Asia,” says RenCap's Robertson. “This began before the present geopolitical deterioration in relations between the west and Russia.
"The Cyprus debacle led many Russians to consider alternative destinations, and Asia scored highly. Banks are generally well-rated and the sovereign is highly rated too. Asian banks have been building up their private-banking business lines. The time difference is not too bad from Moscow and we expect this trend to continue.”
According to the senior Hong Kong banker, the funds flowing into Asia are most likely coming from Switzerland and London, as well as Cyprus.
“In terms of private banking, Singapore in particular is benefiting from Russian money,” he adds. “It’s fairly invisible. It is happening and you don’t really see it. It’s embedded within the private banks.”
The fluidity of the conflict in Ukraine makes it difficult to predict the outcome of the diplomatic wrangling between Russia and the western nations. Every week throws up new developments with the seriousness of the sanctions from both sides escalating all the time.
However, as some of the traditional markets for Russian funding and wealth management start to look ever more hostile, the question of whether Asia is willing and able to step in and fill the gap will become all the more pertinent.