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. Last Updated: 07/27/2016

Large Banks Asked to Aid in Bailouts

ST. PETERSBURG -- The Central Bank has asked Russia's largest commercial banks to limit the impact of an impending crisis in the industry by taking over troubled smaller banks, the state bank's deputy chairman said Friday.


Alexander Khandruyev told The Moscow Times during a break in a two-day banking conference in the capital that smaller, ailing banks might be salvaged by a partnership between the Central Bank and a handful of giant, Moscow-based private banks.


"Small banks with bad debts can be reorganized as branches of bigger banks like Sberbank, Promstroibank, Mosbusinessbank, Tokobank and others," said Khandruyev. "We have met with these banks, and they are ready to take over their shakier colleagues and put them in order."


Amid predictions that as many as half of Russia's 2,350 commercial banks could fail due to bad loans, the Central Bank last month announced plans to rescue insolvent banks, saying that it intended to place much of the financial burden on other commercial banks.


However, Yury Uvarov, Promstroibank's assistant chairman, was skeptical about the role of larger banks in such a scheme. "We get lots of requests from banks in trouble to take them over -- with all their risky credit -- and spend the reserves we have worked hard to amass on bailing them out," Uvarov said. "It's rarely profitable for us."


Uvarov and other speakers called upon the Central Bank to figure out on its own how to head off the bank failures that began last year and have doubled this year.


Central Bank Chairman Viktor Gerashchenko promised to stem the crisis, though he did not say specifically how he intended to do so.


He did say, however, that the Central Bank would "loyally" support banks that invest in industry, while "looking more simply" upon banks involved mostly in "trade and commerce."


According to Gerashchenko and other conference attendees, many of Russia's 2,350 commercial banks are run by inexperienced businessmen who do not know how banks work, and who have made risky loans that are not paying off.


Banks are also suffering from the reduction in monthly inflation, which in August fell to 4 percent compared to 21 percent in January.


A good illustration of the problem is Kredit Petersburg, a St. Petersburg bank that made local business headlines this week.


Earlier this year, Kredit Petersburg offered depositors a 12-month deposit scheme with an annual interest rate of 180 percent.


Kredit Petersburg -- like nearly every bank offering such rates -- counted on inflation to pay for most of the interest. But in the past six months, inflation has decreased sharply, making it painful to keep paying depositors all that interest.


While others bank are grinning and bearing it, Kredit Petersburg has opted -- in the words of the weekly newspaper Delovoi Petersburg -- "to solve its problems by dumping them onto the shoulders of its depositors."


In a move ridiculed by other banks and the St. Petersburg Mayor's office, Kredit Petersburg informed depositors that their interest rates would be reduced from a yearly 180 percent to 108 percent. Those who thought this unfair were asked to withdraw their deposits and leave; the mayor's office suggested they sue instead.


Other banks are simply folding under the pressure of bad loans.


"If last year 19 banks were closed, by September this year we have closed 37 banks, and approximately 20 more are being considered as potential bankruptcies," said Khandruyev.


Neither Khandruyev nor his chief Gerashchenko, however, would venture a guess as to how many banks would fail. Gerashchenko said simply: "Many will fail, and this is normal."