Russia urged on lending boost plan

14/05/2009 | Simon Pirani

The chief executive of Russia’s largest privately-owned bank has called on the government and the nation’s central bank, headed by Sergei Ignatiev, to rework their strategy for boosting lending to the real economy.

Johann Jonach, chief executive of Alfa Banking group, the international holding that includes Alfa Bank of Russia and five foreign subsidiaries, told Emerging Markets: “The Russian banking system is not in bad shape, because of the liquidity support provided by the authorities at the end of last year.

“But step by step interest rates on refinancing have been increased. Now half-year funds cost 16% in roubles.

“On the one hand the authorities are urging us to lend at 16%, and on the other the central bank is refinancing at 16%. That is a problem.”

The only other alternative funds available are subordinated loans being offered via Vneshekonombank, which have conditions attached that many banks are unwilling or unable to meet. “This is a dilemma that the authorities will have to face”, Jonach said.

The first tranche of VEB’s subordinated loans, were offered at the end of last year to Russian banks whose shareholders put up new capital. VEB then matched the amount of new equity one-to-one. Only Alfa bank, which received 10 billion roubles, Nomos and Khanty-Mansiisk banks participated.

With the second tranche, announced this week, VEB will offer a loan three times the size of new equity to all banks with a capital base of 3.5 billion roubles or more, i.e. 95 or so of the largest banks. It is reported that there will be restrictions on the way that funds are disbursed, and on interst rates charged.

“We will see whether the scheme will work”, Jonach said. “The authorities’ aims are understandable. But the amount of funds that will get to the real economy this way will not be enough to save it.”

He said that central bank refinancing for terms of more than 180 days, which is not currently available, would be of much greater benefit to the real economy. “This is the biggest gap.”

The largest lenders to Russian industry at present are the state-owned banks, which have provided support to enterprises hard hit by the recession with reference to social as well as economic questions.

Jonach at Alfa said that, while the government’s concern with social policy was “natural”, the danger was that a large volume of loans was being made “and it’s not clear how the state banks will get their money back”.

Pavel Gurin, chief executive of Raiffeisen Bank Moscow, one of the largest foreign-owned banks, told Emerging Markets that banks will need to reduce the volume of non-performing loans in their portfolios, and get more confident with customers’ balance sheets, before providing working capital again.

“The main activity now is refinancing bilateral lines”, Gurin says. “The level of working capital needed is lower in sectors where costs have come down, but even so it’s difficult to provide what’s needed. The level of NPLs is growing throughout the banking system and we are all concentrated on customers’ risk profiles.”

Gurin added: “The Russian banking sector does not have a problem with liquidity, in contrast to many of its neighbours. That issue was addressed very effectively by the authorities last year in the immediate aftermath of the financial crisis. And the country has its own financial resources. The problem is NPLs and the indebtedness of privately-owned companies.”

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