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. Last Updated: 07/27/2016

Suspect Banks Handle Farm Aid

The same commercial banks that have done a dubious job distributing government loans to the agricultural sector in previous years have been awarded the right to administer up to 7 billion rubles ($307 million) this year.

Deputy Prime Minister Yury Maslyukov said Monday that SBS-Agro, Alfa Bank, Rosbank, Sobinbank and Vozrozhdeniye would be tapped to distribute the low-interest loans this week after they had signed an agreement with the Agriculture Ministry on how they plan to repay the money.

Repayment is exactly the problem. Much of the agricultural funding in recent years has gone unpaid, while bank analysts suspect a good chunk of the money has been misappropriated or simply stolen.

Despite this, the government has awarded the funds to the same banks that distributed the money in 1997 and 1998, without conducting a new tender.

Officially, banks distributing the credits earn a small percentage for their work but in past years have earned much larger sums by delaying distribution of the money in order to invest it in securities, analysts say. The liquidity is particularly important today as sources of financing for Russian banks dry up.

Banks have also earned political dividends by directing the low-interest credits to regional officials not meant to be recipients, according to an analyst with Rating Information Center.

"Distributing this money is a way to attract regional politicians," the analyst said. "SBS-Agro goes to the regions and says it will give a certain governor a credit if he helps transfer local business accounts to SBS."

The government itself threatened last spring to get tough on the two lead banks administering the program - SBS-Agro and Alfa Bank - when they failed to collect and repay all of the 6 billion rubles they had distributed in 1997. But the threats seem to have fallen flat.

A spokesman for SBS-Agro, which in 1997 and 1998 distributed about half the total funds through its 2,000-branch network, said it was able to collect only 50 percent of the money it lent both years. Alfa Bank seems to have fared better: vice president Alexander Antonets said Tuesday the bank has collected about 92 percent of the money it lent both years.

The banks may be shooting themselves in the foot by neglecting to collect the money. According to an Agriculture Ministry official, funding for this year's program will come mostly from money returned from the 6.5 billion rubles lent in 1998. The draft 1999 budget also calls for an additional 500 million rubles in new funds, the official said, for a maximum total of 7 billion rubles.

The deadline for collecting the 1998 credits was Dec. 31, but final figures have not yet been tallied, the official said.

"Of course, because of the financial crisis, there will be problems with collecting the credits," she said. "How big the fund will be this year is still unclear."

While Alfa Bank has remained liquid throughout the financial crisis, SBS-Agro has been unable to meet its obligations to depositors, forcing them to accept a punitive restructuring of their accounts.

Despite this, an SBS-Agro spokesman said the bank is fit to do the job. The agricultural credit program seems to have fallen to SBS-Agro by default: the bank owns the former Agroprombank, which during Soviet times distributed subsidies to farmers.

The spokesman blamed SBS-Agro's inability to collect funds last year on regional governments. Loans that were given to individual farmers or to food processing factories were all repaid, he said, while loans given to regional governments went largely unpaid. The bank decided to give regional governments the loans because they were "knowledgeable of their regions" and were "supposed to pass the credits on to agriculture," he said.

"Instead, they used the loans for other purposes, to pay salaries and other expenses," the spokesman said. "They owe us a big debt."