Rising NPL’s cast pall over banking sector

Russia's Central Bank says the level of non performing loans in the banking sector reached 4.5% in the first half. But many it's likely to get worse as the Russian economy approaches the anniversary of the crisis.

Companies in 21 sectors of the Russian economy out of 22 joined the debtors black list in the first six months of 2009. Deepest in the red are retail chains, automakers and energy producers. Evgeny Nadorshin, Chief Economist at Trust Bank, says these can now refinance, but their debts have caused more serious problems in other sectors of the economy.

"The Resource sector, especially the energy sector, are money generating sectors. They feed a lot of other sectors. So first of all they felt problems. They have already cut their costs. More problems I expect from construction. I also expect that the manufacturing sector which needs long-term money, especially heavy machinery, may face difficult times.”

The level of non performing loans will further increase in September, on the anniversary of the crisis in Russia. That was the last month when companies could get credit at low rates, but it was mainly in the form of one year loans and now it's time to pay. Anatoly Maksakov, Deputy Chairman of Absolut Bank, says the amount of non performing loans may double in the next two months.

“10% of non performing loans from the overall credit portfolio – that’s what we are going to see in the autumn. But unlike small banks, large ones have significant funds and can survive such a situation for two or three years. They may either restructure their current credits or take assets and wait till their price goes up.”

Analysts warn that the rising level of non performing loans could provoke a new wave of bankruptcies, and further consolidation in the Russian banking sector.