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27 Mar, 2009 19:42

Banks batten down for wave of bad debts

Alfa-Bank President, Pyotr Aven has become the latest business figure to point to a looming wave of bad debts blighting Russia’s banking system, as calls on the governments cash mount.

Russia’s government has already spent an estimated $110 billion helping banks boost reserves and system liquidity since September. But more support is already being flagged, with Finance Minister Kudrin pointing to bad debts as the next stage of the financial crisis in Russia.

“The crisis cannot be without consequences. And one of them is a fall in production. Sales will fall as well. Factories are failing to repay their loans. One of the threats to the financial sector is the increase of bad debts.”

The government is forecasting that 10% of loans will fall into default this year. Far more gloomy is Alfa-Bank President, Pyotr Aven. He sees hundreds of smaller banks facing bankruptcy.

“The current level of debt is 10% and we will see 15% by the end of the year, which accounts for banking system capital overall. We need to solve the problem of recapitalising the banks.”

While capitalization is an issue for banks, the calls on government funds from bank customers continue to mount, according to Bella Zlatkis, Deputy Head of Sberbank

“Banks are looking to the government to provide help to the real sector of the economy. Realistic government guarantees and support for real estate. It's also an important customer for the banking system.”

With the government now under budgetary pressure, it is also looking at swapping sovereign rouble bonds for shares in banks to boost their capital. But for banks and companies, getting the funds to continue business is becoming paramount, as the government looks to keep something in reserve with the economic outlook continuing to worsen.