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. Last Updated: 07/27/2016

Economists Warn Against Bad Loans as Retail Lending Soars

The retail loan portfolio of Russian banks soared by 75 percent to 2 trillion rubles ($76.25 billion) in 2006, Central Bank data showed Monday.

Retail loans made up 7.8 percent of the country's gross domestic product, and 14.7 percent of all banking sector assets, which in turn grew by 44 percent, the data showed.

The capital adequacy ratio -- a measure of a bank's capital expressed as a percentage of its risk-weighted credit exposures -- fell among all Russian banks to 14.9 percent Jan. 1, 2007 from 16 percent one year ago.

Big cities in Russia are peppered with posters urging the population to borrow to buy apartments, cars and home appliances.

Some economists warn that banks could be saddled with millions of dollars in bad loans if a drop in oil prices hits the incomes of middle class Russians.

Banks' bad retail loans portfolio grew to 53.7 billion rubles ($2.05 billion) from 21.8 billion rubles Jan. 1, 2007 to stand at 2.6 percent of total retail loans, according to the data.

Economists warn that Central Bank bad loan statistics may understate the situation because Russian accounting rules make it easy for banks to get bad loans off their balance sheets.

The Central Bank said Russia had 1,189 organizations with valid banking licenses as of Jan. 1, 2007, while 155 licenses had been revoked in 2006. Among Russian banks, only 18 posted losses in 2006.

The large number of banks in Russia is a legacy of the chaos that accompanied the fall of the Soviet Union, when businessmen started to use pocket banks to dodge taxes and control firms' cash flows.