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. Last Updated: 07/27/2016

Banks Bailed Out With State Loans




The Central Bank over the weekend issued billions of rubles in long-term loans to a restricted group of banks, a move that may revive Russia's banking sector but could also undermine the ruble and drive up inflation.


Central Bank chairman Viktor Gerashchenko on Saturday announced the loans, which went to a small group of banks including SBS-Agro, MOST-Bank, Mosbiznesbank, Vozrozhdeniye and several regional banks.


The Central Bank said Tuesday it had now lent a total of 55 billion rubles ($3.5 billion) to the country's banking sector since Aug. 17, when Russia's financial collapse started. Economists said the loans will basically be financed by printing money and could fuel inflation.


The "stabilization" loans paid Saturday to national and regional banks must be used for depositor payments, a Central Bank spokesman said Tuesday.


The loan has allowed SBS-Agro, which has had lines of depositors outside its branches since the start of the crisis, to start dispensing cash from its automatic teller machines. At several machines around Moscow, depositors were allowed to take out up to 500 rubles per day.


An SBS-Agro spokesman confirmed receiving a Central Bank loan Saturday but would not say for how much. SBS-Agro had about 7 billion rubles in individual deposits as of July 1 this year.


Other banks were more open about the Central Bank support they had received. A Mosbiznesbank spokesman said the bank had received 1 billion rubles, and MOST-Bank said it received 900 million rubles and that more was to come.


None of the banks would reveal the exact terms of the loans, but some said repayment was due in about a year, with the possibility of renewal.


Analysts said the loans would help the banks repay their debts to depositors but they would not be enough to meet billions of dollars of debts owed to foreigners under forward contracts and syndicated loans.


The banks have been shielded from these debts under a debt moratorium announced by the government but that is due to run out Nov. 17. Gerashchenko said Tuesday that the government would not extend the three-month moratorium.


The government approved the "stabilization" loans at its meeting on Saturday, saying it would offer help to banks that had liquidity problems but that showed sufficient capital, Itar-Tass reported. The Central Bank has said previously it would protect banks which are crucial to maintaining Russia's financial infrastructure.SBS-Agro spokesman Sergei Meshcheryakov said the bank was chosen for a bailout because of its wide network of branches and its social role. The bank has 1,500 branches nationwide, including a huge network in remote rural areas, and the most depositors after state-controlled Sberbank.


A MOST-Bank representative explained the loans by saying it was important to avoid expensive bankruptcies in the government's choice of bailouts.


The Central Bank has, however, allowed at least one major retail bank to collapse. Last week, it withdrew the license of Inkombank, which is about the same size as SBS-Agro and also has about 7 billion rubles worth of individual depositors.


Tom Balestrery, an analyst for investment bank First Mercantile Capital, said there was no economic logic for the Central Bank's support of the banks. "They should have bankrupted SBS long ago. These are clearly political decisions."


Balestrery said the loans, which are essentially funded by printing money, would push up inflation and drive down the ruble. He predicted a 100-percent inflation figure for the year end, or 25 percent inflation for the fourth quarter of 1998. "This is realistic," he said.


But the MOST-Bank spokesman said the loans would in fact strengthen the ruble since they would boost exports and allow the Central Bank to increase its reserves, he said.


Russia will likely see even more money printed before the end of the year to meet the budget deficit. The government said it would need to print as much as 25 billion rubles by the end of the year.


Gerashchenko said the Central Bank had taken on responsibility for 35 billion rubles of individual deposits, apparently as part of its guarantee for small investors in six big Russian banks including SBS-Agro and Inkombank.


It is unclear how the Central Bank has calculated the total figure of 55 billion rubles. The Central Bank announced last month that in early September made available about 10 billion rubles of loans to six big banks, including SBS-Agro, Inkombank, Bank of Moscow and three regional banks.


A spokesman said the 55-billion figure did not include mutual debt cancellations between banks under a Central Bank scheme conducted in September but analysts speculated that commercial banks had been given loans in the course of the scheme.


The government has also helped the banking sector by rescheduling agricultural loans guaranteed by banks. Prime Minister Yevgeny Primakov signed a resolution on Oct. 3 allowing the farm sector to defer repayment of agricultural loans until 2005. Interfax estimated the agricultural loans total about 6 billion rubles.