Rising debts driving increased state involvement in economy

Business leaders have poured cold water on claims that the crisis is ending, as key bankers say non performing loans are still a major problem and are the heart of increased state involvement in the economy.

The scale of the debt crisis hit home last week, when Russia' largest private bank filed bankruptcy claims against major parts of Rusal, the world's largest aluminium producer. At an economic forum designed to woo back investors, Alfa-Bank President Pyotr Aven says he doesn't see how companies can pay back debts.

“Next year Russian companies are expected to earn $70 billion.  At the same time they have $200 billion of due debt.  So there's a gap equal to two thirds of the liabilities.”

Oleg Vyugin, Chairman of MDM Bank says toxic debts are on the up, if at a slower pace.

“Still it's growing, but speed is much less than it was in the first half of this year. I forecast a further deterioration of bad debt increase.”

That leaves banks with little choice but to take a stake in indebted companies according to VTB Capital President, Yury Solovyev .

“Converting debt into equity actually allowed us to introduce better corporate governance in many cases.”

VTB has taken over top developers, retailers, even Dinamo Moscow Football Club. Since Russia's largest banks are state-owned, experts have dubbed it nationalisation by stealth. That's a far cry from mass privatization, the government's new stated goal for the Russian economy.