Kudrin Counters Bank Bailout Talk

APKudrin and Japanese Finance Minister Fukushiro Nukaga on Sunday. Kudrin said Russia's banks had enough liquidity.
Finance Minister Alexei Kudrin on Friday sought to downplay assurances by other government officials that the state would step in to shore up domestic banks as a spate of loans come up for repayment.

"This will depend on the banks' funding needs. At the current time, there is no shortage of liquidity, and if this situation persists, we will not support the domestic market," Kudrin said.

The comments by Kudrin, a deputy prime minister who oversees the government's economic policy, followed a meeting Thursday where he and Prime Minister Viktor Zubkov met with representatives of the country's leading banks, who appealed for access to state funds to see them through a potential liquidity crunch.

Central Bank deputy chairman Alexei Ulyukayev also said Thursday that the state would start weekly auctions in March to provide commercial banks with surplus budgetary funds.

Russian companies, including banks, have to repay an estimated $80 billion of debt this year, $20 billion of that in March, Vedomosti reported. Additionally, banks must pay out 400 billion rubles ($16.1 billion) in tax payments in April. This has prompted fears among leading lenders that the banks will face a liquidity crunch in early spring.

The Central Bank has a number of refinancing tools at its disposal, including repo auctions, and last August, at the height of the liquidity crisis, it was pumping out about 300 billion rubles per day to boost liquidity.

Since August, when the fallout from the U.S. subprime crisis reverberated around the world, Russian lenders have found it tough to access wholesale funding from abroad, as international banks hunker down to ride out the credit crunch.

Speaking a day ahead of a meeting in Tokyo with Group of Seven finance ministers, Kudrin on Friday stressed the importance of a global effort to work together to prevent the crisis from spreading deeper.

"Coordination of efforts may soften the consequences of such crises, first of all a coordination of efforts between central banks on their refinancing rates, because this is the key factor supporting financial systems," Kudrin said.

Sberbank chief executive German Gref, who was economic development and trade minister until September, led a delegation from 15 banks, including VTB, Rosbank, Gazprombank and others. They suggested tapping state development institutions and the newly created National Welfare Fund, which until Feb. 1 was part of the $160 billion stabilization fund.

During the meeting, it was agreed that 1 trillion rubles ($40 billion) would be set aside to tide the banks over, if necessary. The money would otherwise go back into the government's economic program, Zubkov said.

Vladimir Milovidov, head of the Federal Service for Financial Markets, also suggested last week that reserves from the state pension fund and Vneshekonombank might be brought into play to support liquidity in the market.

Zubkov on Thursday denied that banks were facing an impending liquidity crisis, saying local banks had "proven their stability and independence from international conditions," Kommersant reported.

There are clear signs, though, that there is some contagion, and that growth in the banking sector has slowed. Figures from the first half of last year put the sector's growth at over 20 percent, while growth slowed to half that figure from July to November.

While the largest banks, led by state-owned Sberbank and VTB, can still access overseas funding, Sberbank's Gref said Thursday that even for a bank of that size, it has proved harder to attract loans from abroad. For smaller banks, he said, it was simply "unrealistic" to attract overseas funding.

While the state-owned and larger commercial banks continue to flourish, it is the smaller banks that are suffering.

"The state-owned banks are continuing to grow rapidly," said Alexander Danilov, a director at Fitch ratings agency. "[A] slowdown in growth [in the second half of 2007] is mainly attributable to smaller banks."

Part of the problem, officials say, is the lack of funding -- particularly long-term -- that is available to smaller banks. Competition for funding on local markets is fierce and interest rates have been pushed up.

Analysts said that while the credit squeeze could lead to some consolidation in the sector, many owners, particularly those not troubled by the need to achieve higher margins and push growth, would be in no hurry to sell.

"If there is a feeling that this situation will at some point resolve [itself], then the shareholders will tend to sit and wait," Danilov said. "But if the situation get worse, and the liquidity situations gets tighter ... some banks, especially those with a significant mismatch in assets and liabilities, may suffer. And the shareholders may be incentivized to sell their business."