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10 Oct, 2008 09:41

Duma passes amendments to protect Russian banking system from global meltdown

The Russian State Duma adopted amendments on Friday that allow the Central Bank to lend to top banks for a period of up to 6 months. It's an attempt to assist the country's financial system during the current global economic turmoil.

The Russian government has made another attempt to protect the domestic economy from the impact of the ongoing financial crisis. The State Duma has granted Russia's second biggest bank, Vneshekonombank, the right to provide foreign-currency loans to companies to service international debt. 

State Duma deputy Anatoly Aksakov says the nation's foreign reserves are large enough to pump sufficient capital into the economy. The challenge is to use it prudently.

“Russia has a high scale of security. We have gold and foreign reserve funds estimated at more than $500 Billion.  We also have a sovereign wealth fund as well as the governmental reserve fund.  This means huge capital that should be pumped into the economy in the right way.”

VEB may lend to companies and banks until 2020 at 8% interest and up to 15% of borrower capital.  And the Central Bank is to provide a $20 Billion subordinated loan to Sberbank until 2020 at 8% annual interest.

The law bill includes measures to prevent Russia from further involvement into the international financial crisis. However, banking experts say the government needs to act quickly for these measures to take effect.

Richard Hainsworth, General Director of CFA, doubts there will be any fundamental changes in the banking system.

“Its almost certainly true that there will be some banks which will be forced into mergers, there may be some which go bankrupt.  That is inevitable in a crisis of such far reaching proportions as we see today.  But the banking system, as a whole, is much stronger than people have previously commented.”

Not only state-owned banks will receive governmental support, but also small private banks. And the government is guaranteeing bank deposits for individuals of up to $27 thousand.