Russian government investing billions to keep banks afloat

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The Russian government is pushing more money into big companies that are struggling as a result of Western sanctions. In the past week alone, it invested 100 billion rubles in Russian bank VTB and nearly 40 billion rubles in Gazprombank.
The Russian government is pushing more money into big companies that are struggling as a result of Western sanctions. In the past week alone, it invested 100 billion rubles in Russian bank VTB and nearly 40 billion rubles in Gazprombank. These two banks are among Russia’s biggest financial institutions and were banned from raising funds from European and US markets last year.

Russia’s economy is shrinking, its currency has dropped by over 40% last year, and nationwide inflation is growing as the country deals a drop in oil prices and Western sanctions. Many investors are withdrawing from their Russian accounts; weakening liquidity at banks. This will eventually mean that Russian financial institutions have less to lend to local companies, which could further weaken the already fragile economy.

VTB is said to be expecting more from government reserves in the coming months. The rate at which banks lend to each other for short timescales, known as the interbank lending rate, has surged in Russia. Overnight rates are around 16%, which demonstrates that even financial institutions are cautious of lending to each other.

Russia’s Central Bank has been running down its stash of foreign cash to try to stabilise its currency in an effort to contain the crisis. During 2014 alone the Central Bank has used up more than $120 billion in foreign currency supplies. It now has $388.5 billion left in total international reserves, including gold and other liquid foreign assets.