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8 Jun, 2009 08:11

Kudrin sounds note of caution on banking system

Russia's Finance Minister has warned of "more skeletons in the closet" for the country's banking sector, as the head of Citigroup says a "shadow banking system" remains unregulated.

On the back of some record losses last year, the five largest U.S. banks in the first quarter turned big profits. It's lead many to claim the worst of the crisis over. But Aleksey Kudrin shocked the Forum by announcing the banking crisis is set to sink further. It's left many scratching their heads.

While Finance Minister Kudrin warned bank problems are growing, Citigroup CEO Vikram Pandit has announced $1.6 billion 1Q profits. The two are now meeting, to explain what's going on.

CEO Vikram Pandit claims Citigroup has cleaned up its act, but many rivals continue to take pre-crisis risks unchecked.

“I’m just going to highlight two areas. Two areas that are particularly opaque, particularly lightly regulated or non regulated. The one is the over the counter markets – take somehting like credit default swaps. Let me focus on another one – the shadow banking system in the U.S. – this was a banking system not funded by deposits to create loans, it was a banking system that borrowed money in the capital markets.”

Kudrin told RT he needs to find unsafe banks before they blow up on the real economy.

“We're trying to find all the closets with all the skeletons but there may be more. The nearest challenge is connected with the real sector of the economy, there is a recession in industry which could damage our financial system, but we are preparing ourselves for that.”

Even the country's number one, Sberbank, says the proportion of bad loans could hit 20%. The head of Russia's largest private bank Alfa says hundreds of rivals could go bankrupt before the year end.