Bad Loans Seen Up to 10% in '10

DAVOS, Switzerland -- Bad loans are likely to soar to 10 percent of Russia's banking sector by the end of 2010, the CEO of Sberbank said Wednesday.

The sharp rise in the size of nonperforming loans at a major Russian bank indicates just how much the economic slowdown is expected to adversely affect the number of companies and people able to pay back their debts.

Sberbank's forecast comes after the Central Bank said it expected the share of nonperforming loans in commercial bank loan portfolios to reach as much as 4.5 percent by the end of the first quarter of 2009.

"I think that losses will be no less than 10 percent. This is the number that we see in similar countries," German Gref, CEO of Sberbank, which is Russia's biggest lender, told reporters on the sidelines of the World Economic Forum in Davos.

"We will create provisions of similar size for 2009-10," Gref said.

When asked about nonperforming loans, he said: "I think we will have about 10 percent. ... I think we could speak of such figures by the end of 2010 in Russia."

The government plans a 900 billion ruble ($26.6 billion) capital injection for commercial banks and Sberbank is likely to receive 500 billion. But Gref said it would likely get fresh capital in the second half of 2009.

He refused to give amounts but said the figure for new capital would have to be large.

The nonperforming loan ratio for Sberbank has risen to about 1.6 percent to 1.7 percent at present from 1.52 percent as of Oct. 1, and provisions have been rising to 4 percent, Gref said.

"We see nonperforming loans and provisions increasing pretty fast. And it was a big growth in the last months," Gref said.

"We [at Sberbank] have created reserves more than twice as large as the nonperforming loans that we have. The situation is fully under control," he said.