Category Archives: SWIFT

15/4/17: Swift & Digital Money: Cybersecurity Questions

Swift, the interbank clearance system, has been the Constantinople of the financial world's fortresses for some time now. Last year, writing in the International Banker (see link here), I referenced one cybersecurity incident that involved Swift-linked banks, and came close to Swift itself, although it did not breach Swift own systems. The response from Swift was prompt, pointing out that there has never been a cybersecurity breach at Swift.

Well, it appears that the fortress is no more. Latest reports suggest that NSA (a state actor in cybersecurity world) has successfully breached Swift firewalls. Details are here:

From financial services and economy perspective, this is huge. Take a macro view: for years we have been told that cash and physical gold and silver are not safe. And for years this argument has been juxtaposed by the alleged 'safety' of digital money (not the Bitcoin and other cryptos, which the Governments loath and are keen on declaring 'unsafe', but state-run Central-Banks-operated digital money). The very notion of e-finance or digital finance rests on the basic tenet of infallibility of Swift. That infallibility is now gone. Welcome to the brave new world where the Governments promise you safe digital money in exchange for privacy and liquidity, while delivering a holes-ridden dingy of a system that can and will be fully compromised by the various states' actors and private hackers.

Come here, doggie, doggie! Have a treat...

14/2/15: Russian Banks: Some New Stats

A very interesting interview with Jim Rogers, reprinted by Russia Insider:

Note the points on the threat of SWIFT sanctions against Russia and the position of China in the US-led sanctions. Both themes have been highlighted on this blog before and both remain very important to the current situation.

And on a SWIFT-related note, few fresh stats on Russian banks situation, reported by BOFIT. Latest data shows Russian banking system assets at RUB77.66 trillion at the end of 2014, up 18% y/y, and this fully accounting for Ruble devaluation. Surprisingly (or not, depending on which fundamentals you consider core drivers for assets growth forward), growth in banking assets accelerated in Q4 2014. The reason was increase in CBR funding for the banks unlocking some liquidity tightness present in Q2-Q3 2014. As the result, CBR-funded share of assets rose from 9% in Q3 2014 to 12% in Q4 2014.

In January 2015, total assets fell RUB24 billion, down 2.6% m/m, thus accelerating the decline registered in December.

Loans to non-financial private sector rose ca 13% in 2014 y/y, similar to 2013 for non-financial companies but lower for the households. In December, outstanding loans to households declined. Non-performing household loans rose ca 6% and non-performing corporate loans were up roughly 30%. Corporate lending fell 0.5% m/m in January, while household lending fell 1.3%, although these figures do not reflect changes in Ruble valuations (Ruble lost 22% vis-a-vis the USD in January after falling 14% in December).

Meanwhile, household deposits fell 2.5% y/y as dollarisation of deposits drove more household savings into 'mattress' savings. In December alone this resulted in a 1% m/m decline in household deposits - a rate, though substantial, still well below what anyone could have expected given the Ruble crisis peak around December 16-18. In part, Government doubling the deposit insurance coverage to RUB1.4 million helped reduce deposits outflows, along with a massive hike in deposit rates that in December hit ca 14% on average, with some banks offering Ruble deposit rates in excess of 20%. Dollarisation also led to a massive, near doubling, of forex deposits held by the households. Share of forex deposits rose from just under 10% at the start of 2014 to 26% at the end of last year.

Drain of household deposits was more than offset by a rise in corporate deposits as companies aggressively built up cash reserves and forex reserves to provide contingency funding for possible acceleration in liquidity squeeze in the markets. Corporate deposits were up 24% y/y and this growth was dominated by larger enterprises.

All of this means that T1 banks capital ratio fell from 13.5% to just under 12% in 11 months through November 2014. November 2014 injection of RUB1 trillion in Government-approved capital for 27 banks via the Deposit Insurance Agency will inject additional 15% of T1 capital into the banking sector.

BOFIT comment on the situation is quite informative: "Russia’s banking sector is in different shape than during the 2008–2009 financial crisis. Banks are struggling with larger portfolios of non-performing loans and capitalisation is weaker. Economic sanctions and higher interest rates have cut off the access of banks to affordable credit and hurt their ability to intermediate credit to the wider economy. The banking sector is also more concentrated than in 2008, when the five largest banks held 43 % of total assets. Today they hold 54 %. All five banks are state-controlled, so the state’s role in the banking sector has grown further. Stricter supervision has caused over 100 small and mid-sized banks to lose their licences since summer 2013, and more banks are expected to lose their licences this year. Some 835 banks operated in Russia at the end of 2014."

Still, take a comparative to Ukraine, where Non-Performing Loans amount to close to 22% of the bank's loans. At the start of 2015, based on CBR data, non-financial corporate's NPLs in Russian banking system amounted to 4.2%. The forecast is for NPLs across the entire private sector to rise to 5.3-5.5% in 2015. NPLs rose 14.4% in January for corporate loans and by 6% for household loans.

Another telling source on the state of Russian banks is Fitch's latest report on 3 banks:

One thing is for sure: the banking crisis is still on-going and is likely to worsen this year, leading to accelerated consolidation in the sector.