“Hundreds” of Small Banks Will Fail in Russia

Pyotr Aven of Alfa Bank has given a pretty grim interview to the Financial Times, in which he predicts that overdue loans could hit some 15-20% of credit portfolios.  The interview shows some signs of desperation over at Alfa, who is seeking to prod the Kremlin back into providing state aid to ease up credit lines.

“We can expect that the level of overdue loans for the whole system might reach 15-20 per cent” by the end of the year, Mr Aven told the Financial Times. “Maybe the 20-30 biggest banks, including Alfa, will receive state support – we’re sure.

“But the future of hundreds of small banks is under big question . . . I believe that hundreds of banks will disappear by the end of the year.”

The warning by MrAven, who served as minister for foreign economic trade in the early1990s, came as the government seeks ways to boost aid to the bankingsystem just days after approving a new annual budget that includesRbs555bn (£11.5bn) in subordinated loans to the biggest banks.

AlexeiKudrin, finance minister, warned yesterday that the level of overdueloans had already reached 10 per cent even though banks were trying tohide it.

He said yesterday the government was working onadditional measures to boost bank capital, including possibleamendments to the budget that would allow the government to issue bondsthat could be swapped for shares in troubled banks.

Mr Aven saidthe Russian central bank was making a mistake in keeping refinancingrates high at 15 to 19 per cent as commercial banks then had to lend onat even higher rates of 25 per cent, making loans expensive. He saidbankruptcies could start hitting the banking system in the thirdquarter when the majority of loans start to fall due.