The Croatian financial system sheltered from a probable Russian bankruptcy

March 17, 2022 – The Croatian financial system is well protected against the increasingly likely scenario of total Russian bankruptcy following harsh global sanctions imposed on it after its unwarranted shock invasion of neighboring Ukraine.

As Poslovniy Dnevnik/Tomislav Pili writes, the Russian bankruptcy, which is increasingly likely to happen soon, will not be felt by the Croatian financial system, nor should global finances be shaken by such a scenario, according to Croatian analysts.

After announcing on Monday that the Russian Ministry of Finance will pay interest to foreign investors in rubles instead of dollars, the story coming out of Moscow changed the Russian Treasury announced that an order has been sent to pay 117.2 million US dollars in coupon interest on Eurobonds it is due to pay to foreign investors this week, dispelling any speculation that it will not be able to meet those financial obligations.

This is called coupon interest on Eurobonds maturing in 2023 and 2024, and Moscow is set to settle its first external debt since the imposition of harsh sanctions following the Russian invasion. from Ukraine.

Reuters noted that it could not immediately confirm information about the preparation of these coupon interest payments with bondholders. Paying the coupon interest in rubles would mean that Russia would not be able to settle its obligations under the bond, so it would have to repay the entire debt. Russia has to settle bonds on 15 bonds issued in international markets worth about 40 billion US dollars, according to Reuters. About half of these bonds are held by foreign investors.

”The last time Russia defaulted on its financial obligations to foreign investors was more than 100 years ago, after the 1917 revolution, when the Bolshevik government failed to recognize Russia’s debt then tsarist. If Russia avoids bankruptcy in its current situation, international markets believe it will only be a postponement of the inevitable.

The recent statement by the head of the International Monetary Fund that the possible bankruptcy of Russia is no longer considered an unlikely event actually confirms what has been “read” in the financial markets for some time, looking at the prices of Russian bonds, said Mate Jelic,” an analyst at Erste Bank.

“Russian dollar bonds have been trading for some time at only 15-20% of face value, effectively implying their expected bankruptcy. According to Bloomberg, the total exposure of foreign investors, including ruble debt and in foreign currency, will not exceed US$70 billion, which is roughly equal to Argentina’s total debt exposure when the country went bankrupt in 2020. Even if this worst-case scenario occurs, c “that is, if Russia stops paying all of its debt held by foreign investors, no major shock is expected on the global financial market,” Jelic said.

When asked to what extent the Croatian financial system could be threatened by a possible Russian bankruptcy, the Croatian Financial Services Supervisory Agency (Hanfa) replied that, according to its analysis, the Croatian non-banking financial sector does not is more or less directly exposed to the securities and financial instruments of Russia, Ukraine and Belarus.

“In Croatia, there are no financial companies under the supervision of Hanfa which are directly owned by Russia. Due to already existing legal restrictions, pension funds are not directly exposed to Russian, Belarusian and Ukrainians, nor open-end instruments, investment funds and leasing companies,” they explained from Hanfa. The assets of insurance companies are only exposed up to 0.5% to direct investments in financial instruments of Russian issuers.

“Despite the impact of the war in Ukraine on the Zagreb Stock Exchange, it is important to note that there are no listed financial instruments linked to Russian issuers or indices of Russian stock exchanges, there has therefore not had trading suspensions of financial instruments as in other European markets.Furthermore, the stock exchange is not exposed to Russia in terms of ownership, i.e. people listed on the list of Russian sanctions,” they concluded from Hanfa.

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