Central Bank Faces Calls To Reduce Interest Rates
The Central Bank should cut its benchmark rates by as much as 5 percentage points to spur lending to floundering industries, banking executives said.
“The Central Bank has room now to reduce interest rates,” Oleg Vyugin, chairman of MDM-Bank, Russia’s second-largest private lender, told reporters late Wednesday after a government meeting on banking chaired by Prime Minister Vladimir Putin. “The floor is 6 percent to 7 percent.”
The Central Bank cut the refinancing rate on July 13 to 11 percent from 11.5 percent, the fourth reduction since April, seeking to revive bank lending as inflation slows and the economy contracts for the first time in a decade. Banks’ reluctance to lend is compounding the effect of low demand for commodity exports, shrinking economic output in the biggest energy exporter by 9.8 percent in the first quarter.
“An optimal balance must be found to avoid a credit famine on the one hand and not to allow uncontrolled growth of bad debt on the other,” Putin told the meeting.
Excluding Sberbank, the biggest lender, delinquent debt reached 4.8 percent of the total portfolio at the end of last month, Central Bank First Deputy Chairman Gennady Melikyan said last week. Bankers at Wednesday’s meeting said the rate of delinquencies is about 10 percent, based on international methodology, Vyugin said.
“Companies are carrying a lot of high interest debt,” Sberbank president German Gref told reporters after the meeting at the bank’s Moscow headquarters. “The reality, of course, is that rates need to come down to under 10 percent.”
Slowing inflation, which fell to an 18-month low in June, would allow the bank to make the cuts, he said.
The latest refinancing rate cut “doesn’t mean that banks can actually get financing at 11 percent,” Gref said. “In fact, the five-week rate in the last auction was 12.7 percent and the six-month rate is over 13 percent. That’s the real rate. That is, of course, too high.”
Putin urged bankers to offer cheaper money, calling a rate of 14 percent “quite acceptable” given the billions of rubles the government made available to banks to bolster their balance sheets.
The “minimum” rate at which banks can lend to companies is 15 percent to 16 percent, Gref said.