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. Last Updated: 07/27/2016

Small Businesses to Receive Support

RIGA, Latvia -- The European Bank for Reconstruction and Development aims to increase loans to small business in Russia, a top EBRD banker said Saturday. He added that despite the 1998 economic collapse, local default rates have remained low.

Loans made by its Russian small business fund already stand at 40,000 over the past five to six years and the EBRD aims to make 3,500 to 4,000 new loans this year, executive vice president David Hexter said in an interview.

The loans range in size from just $30,000 to $125,000.

"It really is like Florentine banking of the 14th century. You do not have balance sheets, you focus on realizable collateral, such as jewelry and on peer pressure," he said.

Small businesses turning to other Russian lenders would end up paying much higher rates than the EBRD charges.

Some of the EBRD's loans to large corporations in Russia were caught up in the financial collapse of August 1998, forcing the bank to take provisions of 553.1 million euros ($493 million) at the end of the year.

But Hexter said the small business sector had been relatively resilient.

"The arrears rate never got above 5 percent, the write-off rates never got above 2 percent," he said.

The EBRD is still hurting from the other loans and is frustrated by the lack of transparency in the local court system.

It and other investors recently settled a dispute over the bankruptcy of oil company Chernogorneft and has reached a settlement with truckmaker KamAZ. "We have had a long-standing problem with KamAZ and there has now been a resolution, which we think is quite reasonable, which indicates that KamAZ and [President Vladimir] Putin can hear what we have to say," Hexter said.

The bank and KamAZ have struck a deal on restructuring $141 million of debt, in a deal that is partly guaranteed by the federal government.

Elsewhere, the EBRD is still struggling through the courts, and found itself on the losing end of a court battle over a loan transferred from SBS Agro bank.

Like many other observers, Hexter is optimistic the new Putin administration will change policy, but concedes there is little hard evidence so far.

Key areas are tax reform and the judicial system, Hexter noted.

He also said that Russia had been somewhat lucky in the aftermath of its default. The fact it had not faced more severe problems had been due to a benign external environment, mainly high oil prices that more than doubled over the course of 1999, rather than any efforts undertaken by the Russians.

"That [oil] was a windfall, how they spend that windfall is what we are waiting for," Hexter said.