VTB Exec Calls for Bank Aid

ZURICH -- The Russian banking sector is facing a slowdown due to the global credit crunch, and authorities should use the oil windfall to support it or face an economic downturn, a prominent banker said late Sunday.

Mikhail Zadornov, head of the retail arm of the country's No. 2 bank, state-controlled VTB, said Russia's fledging mortgage market might experience serious problems if the banking sector did not find sources of long-term financing.

"We need to support the market for mortgage-backed securities, creating demand from institutional investors, including pension funds, insurance companies and possibly the National Welfare Fund," said Zadornov, a former finance minister.

Russian banks have taken advantage of low interest rates abroad and borrowed billions in international capital markets to finance growth at home. The global credit crunch cut off the banks from external sources of financing.

The $32 billion National Welfare Fund was supposed to become the country's own sovereign wealth fund and invest abroad, but with prices for oil, Russia's main export commodity, running at record highs, calls to use it at home are getting louder.

"There is a dialogue going on, and from my point of view this dialogue should be speeded up as the situation is getting worse every day," he added, speaking on the sidelines of a Russian economic forum in Switzerland.

Outgoing President Vladimir Putin has suggested altering the way the country runs its gold and foreign exchange reserves, which are close to $500 billion and include the National Welfare Fund, to help banks overcome the liquidity shortage.

Zadornov, who, along with other bankers, is due to meet Putin this week, said he saw a slowdown in all three banking sectors -- consumer lending, mortgages and corporate lending.

"If the banking sector slows down, it will affect Russia's growth rates," Zadornov said.

He also said banking contributed at least 2 percentage points to last year's 8.1 percent GDP growth rate.

Zadornov also said the financial community needed a realistic inflation target instead of the current 8.5 percent for full-year 2008, which the government is unlikely to achieve with annual inflation already running at over 13 percent.