Government allocates more funding for banking sector

The government is allocating $15 billion dollars to boost the capitalisation of Russian banks, in order to further underpin the stability of the sector.

Bad corporate loans in the top 20 russian banks increased by 20% in Februarym and retail loan defaults are up by 10%. But problems in the real economy may speed up that trend, Finance Minister Aleksey Kudrin warned, at a meeting with President Medvedev on Wednesday.

In response, Kudrin says, the government will pump more cash into the system to support capitalisation of Russian banks.

“The Problems of the real sector will result in a series of loan non-repayments to the banks. They should remain solvent and stable. So, for the banking system to get through these difficult months we are planning to provide $8.3 billion for their capitalization and $7 billions in subordinated loans.”

The Bank of Moscow, Russia's fifth largest, which expects its bad debt ratio to NOT exceed 5 percent this year, is ready to use this opportunity.

It plans increase its capital by a billion dollars through a government subordinated loan and additional share issue according to President, Andrey Borodin.

“Bad debt growth varies according to different categories. We are planning to create reserves to cover losses from non payments equal to 5% of our credit portfolio. That the maximum we are expecting right now.”

Market watchers said the Russia banking sector was on the brink of a crisis last autumn. The government staved it off then by injecting billions of dollars of state money into banks’ capital.

Now analysts are talking about alarming new signals in the sector and welcome additional recapitalization, according to Anton Tabakh, Senior Analyst at Troika Dialog

“There are concerns about stability of everybody, including foreign owners of major Russian banks. Some of them included in top 10. like Citi or Raiffassen. And as a result the only thing that can satisfy investors concerns is hard cash.”

And it did. On Wednesday the stocks of Russia’s two largest banks Sberbank and VTB made major gains in response to the news.