Banks brace for bad loans

Russian bankers expect the state to nationalise up to 20% of their sector. But analysts say the quality of the banks’ corporate borrowers is better than many people fear.

A photo opportunity with some of the top figures in the Russian banking system looked good, but the talk, is bad. Just over 7% of the loans on their balance sheets are defined as bad loans.

And the head of VTB, Andrei Kostin, says his bank’s portfolio is likely to deteriorate.

"Our business plan says the amount of bad loans won’t go over 8%. But I think the figures of 10 to 15% are more sensible."

But analysts say bank customers are in good shape – at least they were until recently. Many corporate borrowers are still able to pay interest on their loans. Banks simply do not offer new loans when the old ones expire.

Richard Hainsworth, head of ratings agency Russrating, says that although times are tough the banking sector can pull through.

“There is a difficulty but it is a difficulty that all countries have in the form of recession. I don’t believe it is unmanageable for the banking sector today.”

He says that Russian companies have only been borrowing since 1998, when the Russian system was last cleaned of bad debt. Only those who could afford Russia’s high interest rates could borrow at all – so most assets in the banking system are good quality. He thinks overdue loans may reach 12% but then fall – as companies switch away from former credit lines to new styles of borrowing.