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. Last Updated: 07/27/2016

Capital Adequacy in Banks Eroded by Lending Growth

The capital adequacy of the country's top 30 banks is being eroded by rapid lending growth, Central Bank data showed on Tuesday ahead of a major rights issue by the country's largest bank, Sberbank.

The bank said the capital adequacy ratio, a measure of a bank's capital expressed as a percentage of its risk-weighted credit exposures, fell to 13.87 percent as of Jan. 1, 2007, from 15.07 percent one year ago.

The data also showed total loans grew 49 percent among the top 30 banks in 2006.

Russia is rolling out stakes this year in its two largest banks, state-controlled Sberbank and Vneshtorgbank. Sberbank plans to sell up to 3.5 million new shares in Russia while VTB will float on both Russian and international bourses.

Top officials and both banks' managers have said Sberbank and VTB are desperate to increase their capital as they approach the 10 percent minimum level required by the Central Bank, which can withdraw a bank's license if the ratio falls to 8 percent.

Sberbank's capital adequacy ratio stood at 11.8 percent at the start of the year. Its assets accounted for over 37 percent of the total assets of the top 30 banks as of Oct. 1, 2006.

VTB said its capital adequacy ratio declined to 12 percent on Sept. 30 last year from 14.1 percent at the end of 2005. It also said bad loans were 2.3 percent of its total lending.

The survey also showed the share of bad loans among top banks rose almost one percentage point in 2006 to 1.94 percent of all retail loans, but analysts said the real share of bad loans might be much higher.

"The Central Bank's bad loan statistics are far from perfect," Alfa Bank banking analyst Natalya Orlova said.