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. Last Updated: 07/27/2016

Top Banker Sounds Off On Russia's Auto Sector

Central Bank Chairman Viktor Gerashchenko trucked over to the Autosalon-2001 international auto show on Friday and predicted a renaissance for Russia's troubled auto sector.

In wide-ranging remarks quoted by local news agencies, Gerashchenko said he expected the number of consumers taking out bank loans to buy new cars to skyrocket in the coming years.

Gerashchenko said the boom would be made possible by a new credit system designed to encourage new car purchases. He also said that to attract the greatest number of buyers a new, affordable model needs to be created — like the British Mini motor — that people with average incomes can afford.

He said the ideal payback period for new car loans was five years, but did not elaborate, leaving it unclear as to whether his remarks represented a new official Central Bank policy or just his own opinion.

Some industry observers on Monday said Gerashchenko's remarks were part of an overall government drive to boost the industry, which has been singled out by President Vladimir Putin as being a priority.

Many bankers and auto dealers said they doubted the Central Bank itself could or would do anything — aside from rhetoric — to help the sector. But one bank involved with consumer lending for new car purchases said Monday it was bullish on the future, with or without Gerashchenko's help.

"People are recovering after the crisis, there's more money around," said Yelena Ashetkova, head of consumer lending for Investment Banking Corporation, or IBK, which has loaned car buyers $11 million over the last 18 months. "But I'm not aware of any Central Bank plan to aid the business."

Like IBK, Probiznesbank, in tandem with the U.S.-funded Delta Capital Group, was a pioneer in the consumer car-loan business. But unlike IBK, Probiznesbank does not see it as a priority area, company spokesman Pavel Busygin said.

Gerashchenko also said Russian automakers needed long-term, local-currency loans to build new production lines. Again, he did not say whether he was speaking as Central Bank chairman, which may encourage banks to up lending, or as a private citizen who has, as he pointed out, "driven a car since 1963."

Peter Westin, senior economist at the Aton brokerage, said that generally, Geraschenko's remarks were in sync with the current pattern – a shift toward investment in domestic production. But, he said, consumer loans should take a back seat to lending to producers. "Priority should be given to loans for productive investment rather than consumer loans," he said.

Another analyst at a major financial house said the Central Bank could help private banks significantly in their lending to both automakers and consumers by loosening rules regarding reserve requirements and helping them fight for lower taxes. The Central Bank, however, is not doing either of these, he said.

Whatever Gerashchenko meant, analysts said the least likely interpretation was that the Central Bank was prepared to guarantee loans to banks for consumer spending.

"Currently, the banking system is not ready for this," Westin said. "Russian banks have been known to take to high risks, and a guarantee from the Central Bank without bank restructuring would prolong a change in this behavior."