The Central Bank of Russia. Photo: Getty images
The Bank of Russia has conducted large-scale stress tests of the banking system to assess the impact of a possible economic shock. In its annual report to the State Duma, the regulator acknowledged the risks of recession and losses of hundreds of billions of dollars due to the escalation of sanctions, falling global demand and lower oil prices. This was reported by the independent Russian newspaper The Moscow Times.
According to the scenarios analysed, Russia’s economy could suffer serious losses due to a drop in the price of Brent crude oil to $49 per barrel, which is 33% less than the current level. If the “risky scenario” materialises, Russia’s export revenues could fall by more than $150 billion, dropping to $266 billion, the lowest level since 2005. Imports will fall to $200 billion, the lowest level in the last decade. GDP is also projected to contract by up to 3.5% per year, threatening a prolonged recession.
Despite the gloomy outlook, the Bank of Russia assures that the country’s banking system is able to withstand such a blow. “The accumulated capital reserves allow most banks to compensate for potential losses,” the report says. The stress tests covered 27 of Russia’s largest banks and 400 key corporate clients.
Confidential forecast and the threat of recession
According to a confidential document submitted to the government in February, the Bank of Russia warns of the danger of a prolonged fall in oil prices. The report says that plans by the US and OPEC countries to increase oil production could significantly reduce Russia’s revenues. OPEC’s current reserve capacity is estimated at 5 million barrels per day, which is enough to completely replace Russian exports.
The Russian central bank also draws attention to the historical precedent of the mid-1980s, when a sharp increase in Saudi Arabia’s production caused oil prices to fall from $30 to $10-15 per barrel. This was one of the key reasons for the USSR’s currency crisis, which eventually led to its collapse.
