Banks Offered Another $14Bln

Prime Minister Vladimir Putin on Thursday announced that the government would inject more money into state and private banks so they could increase lending, but he fell well short of the amount promised by Finance Minister Alexei Kudrin a day earlier.

No budget cuts were made public, despite a pledge by the key anti-crisis planner in Putin's government, First Deputy Prime Minister Igor Shuvalov. Instead, Kremlin economic aide Arkady Dvorkovich offered assurances that no cuts were coming but said a change in spending structure was possible.

The government will offer 500 billion rubles ($14 billion) to banks in the next few months, Putin said in opening a Cabinet meeting. He referred to decisions made in consultation with the government's economic officials, including Kudrin, on Tuesday.

Kudrin, speaking in London on Wednesday, said the government had earmarked another $40 billion for domestic banks. Calls to the Finance Ministry went unanswered late Thursday.

Putin said banks resumed lending after escaping the threat of collapse in the fall, but lending grew as slow as 1 percent per month.

"The speed of lending growth is insufficient," Putin said. "Our next task is to increase this speed."

VTB will receive 200 billion rubles in Tier 1 capital and may see the government's ownership grow, Putin said.

VEB will receive 100 billion rubles in Tier 1 capital and possibly another 100 billion rubles in Tier 2 capital, or subordinated loans, Putin said.

Private banks will be eligible for another 100 billion rubles in subordinated loans in addition to the 225 billion rubles in such loans that the government has already made available for them, Putin said. The banks will get the money if their shareholders can match the amount, he said. Sberbank, if it needs more liquidity, will draw funds from its controlling shareholder, the Central Bank, Putin said.

Money to private banks is likely to come from the National Welfare Fund, Economic Development Minister Elvira Nabiullina said. The federal budget will account for the rest, she said.

The first state bailout package was meant to rescue the financial system from collapsing, Putin said. This time, banks will need to make sure that they spend the state money on lending, he said.

Banks bet much of the initial state aid on currency speculation as the Central Bank gradually devalued the ruble in the recent months.

If they don't resume lending, they may forfeit future state help and hurt their reputations, Nabiullina warned.

The Cabinet didn't discuss budget revisions, Nabiullina said. Shuvalov built anticipation of revisions Wednesday when he told investors behind closed doors at a Troika Dialog conference that significant budget cuts would be announced the next day.

The Finance Ministry is still working on a revised budget that assumes Urals blend oil will average $41 per barrel this year. It is unlikely to complete the work before the Economic Development Ministry submits a new forecast for the economy. The forecast must be ready by next Monday, a government source said.

Dvorkovich said Thursday that budget spending would remain at the previously planned level. The Reserve Fund will cover a possible deficit of at least 6.1 percent of gross domestic product, he said at the Troika Dialog conference.

He struck an optimistic note, saying Russia was nearing the bottom of the crisis and the economy would start recovering in the middle of the year.

The government is likely to further reduce expenditures where possible to avoid a deficit of more than 7 percent, said Yekaterina Malofeyeva, chief economist at Renaissance Capital.

"They will likely base their calculations [of possible budget cuts] around how much they are ready to spend out of the Reserve Fund but will try not to exceed a 7 percent deficit," she said.

Nadia Popova contributed to this report.