Kudrin Says State Preparing Capital Injection of $40Bln

ReutersDarling gesturing to Kudrin on Wednesday before a meeting in London.
LONDON -- Russia is preparing to inject about $40 billion in Tier 1 and Tier 2 capital into domestic banks on the condition that banks will lend some of the funds to businesses, Finance Minister Alexei Kudrin said Wednesday.

Speaking at a news conference, Kudrin said he would welcome the participation of VTB bank in the program, although VTB chief Andrei Kostin said no decision on injecting capital into Russia's No. 2 bank has been finalized yet.

Tier 1 capital is the core measure of a bank's financial strength from a regulatory point of view, such as equity and cash, and Tier 2 capital is regarded as the next most reliable.

"At the moment, we are preparing one more package to the tune of around $40 billion in Tier 1 and Tier 2 capital support," Kudrin told reporters after meeting British Chancellor of the Exchequer Alistair Darling.

"We are preparing the banking package but with the condition that the funds will be passed onto the real economy," he later told another news conference.

Moscow has already pledged 950 billion rubles ($26.2 billion) in subordinated loans to key banks last year to help the country's financial sector after the global credit crisis triggered an outflow of foreign capital.

"As we are a shareholder of VTB, we are happy to invite it to enjoy this support through the package that is being prepared," Kudrin said.

A banking source said Wednesday that the government has agreed to give state-controlled VTB 200 billion rubles in Tier 1 capital, adding that an official announcement is likely to be made Thursday.

"It's important such measures are taken. All the shareholders will win, including minority shareholders," Kostin said, adding that no decision has been finalized.