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Russia banking crisis just beginning: top banker

Posted by Kris Roman on April 13, 2009

 

Russia’s banking crisis has only just begun and the government has been slow to react, the head of its largest bank said Wednesday, contradicting optimistic comments by Prime Minister Vladimir Putin.

The blunt comments by Sberbank chief executive German Gref, who also said bad loans in Russia were increasing by 20 percent a month, came just two days after Putin said the threat to the banking system had receded.

“A banking crisis in Russia is in its very beginning and it will come from the real (non-financial) sector of the economy,” the RIA-Novosti news agency quoted Gref as saying at a conference.

“Slow decision making and the weakening of regulatory requirements led to the accumulation of bad debts,” said Gref, a former long-serving minister of economic development under Putin’s presidency.

“The topic of bad debts is the most key and painful. This is an unpopular political theme.”

Overdue loans in Russia are increasing by 20 percent a month, he said, as companies are struggling to repay debts.

Arkady Dvorkovich, President Dmitry Medvedev’s top economic adviser, issued a similar warning, saying that another wave of the economic crisis would follow and Russia’s banking system will be “seriously” affected, ITAR-TASS reported.

Authorities expect that the ratio of non-performing loans in the system will rise to 10 percent by year’s end from the current level of 3.3 percent.

In a report posted on Sberbank’s website Wednesday, Gref said that “probably no one has a precise estimate for the amount of problem loans” in Russia and it could end up being over 10 percent.

In 1998, when the country defaulted on debt and devalued the ruble, the amount of non-performing loans was 40 percent, Gref said, citing International Monetary Fund data.

He added that he had forecast at a government meeting in September 2008 that gross domestic product would contract by four percent.

“Everybody was laughing at it back then,” said Gref. “But it is obvious today that these are absolutely real figures that will apparently be realized.”

The remarks by Gref — who was appointed to head Sberbank in 2007 — came on the heels of Monday’s announcement by Putin that the government had managed to avert a banking crisis.

“The threat of a banking system (crisis) has receded. And it had been literally on the doorstep,” Putin told the Russian parliament as he presented his government’s anti-crisis plans.

He also said the ruble had stabilised after losing over a third of its value and that inflation would likely drop in 2009.

Mounting economic troubles have cast doubt on the future of Putin’s government, whose popularity is largely based on the growth and stability achieved during his eight-year presidency that ended in 2008.

Putin said the government planned to spend at least 1.4 trillion rubles (42 billion dollars) this year to fight the effects of the crisis.

That figure rises to 3.0 trillion rubles if central bank reserves and those of other government institutions are taken into account, Putin said.

Authorities have repeatedly slammed banks for stashing away state money and converting it into foreign currency instead of channeling the funds into the productive sectors of the economy in the form of loans.

Medvedev defended Wednesday the state’s right to regulate commercial banks’ lending rates as a temporary measure to confront the crisis.

“Ideally, there is no need to regulate lending rates but in a difficult situation — for six months to a year — these processes should be implemented according to different scenarios,” he told the governing United Russia party.

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One Response to “Russia banking crisis just beginning: top banker”

  1. banking said

    I think it’s only just a binging, thanks for the news.

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