Second wave of crisis could still be lurking for banks

Economists warn Russia is facing a possible second wave of the financial crisis, and think the recession could become much deeper than the government expects.

Russia’s GDP will fall by 5.5% this year according to a study by investment bank Goldman Sachs. That's 2% lower than its earlier forecast.

But the bank says the Russian economy may rally early next year, if it’s not struck by a second wave of the crisis. A surge in losses to the banks from bad loans could threaten recovery according to Andrey Sharonov, Managing Director of the Troika Dialog Group.

“The possibility of a second wave of the crisis remains, because of the increased number of non-performing loans accumulated by the banks. This affects financial wealth and capital of the banks as well as their desire to lend to the real sector of the economy.”

Phillipe Delpal of BNP Paribas Vostok also thinks non performing loans can be expected to rise.

“I am a little bit concerned by the situation, by the growth of NPL, in the country But its very difficult to understand whether we will have, as you mentioned, a second wave of economic problems. But I expect from a personal point of view is the growth of unemployment in Russia. Definitely still a growth of NPL for banks, and maybe we will see some difficulties in medium sized banks in Russia.”

But Sergey Vasilyev, a board member of state-owned VEB bank, says measures taken by the government – such as loans given to commercial banks by the Central bank – have already proved effective. Russia is to issue more than $16 billion in subordinated loans for the banking sector and, he says, that should help avoid another financial crisis.

“The possibility of the second wave of the crisis depends largely upon the development on the Western markets, international markets, not in Russia itself.  The major long-term measure is provision of subordinated loans by VEB to large and medium size Russian banks. I think this second measure is of very big importance in longer term.”

Russia's large private external debt and poor access to finance remain major problems for the real sector of the economy. At the same time analysts warn against excessive lending.  They say the government should not pressure the banks to lend, because that presents its own dangers.