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. Last Updated: 07/27/2016

Klepach Gloomy on Lending

The global liquidity crunch may hit the two key drivers of the country's strong economic growth — consumer lending and the real estate sector, the Economic Development and Trade Ministry's chief forecaster said Wednesday.

"There is some overheating in the economy. It can be seen in real estate, especially in large cities, as well as in consumer lending and home loans markets," Andrei Klepach, head of the ministry's planning department, told a news conference. "The market correction and capital outflows will lead to a slowdown in the banking sector growth, especially in overheated segments."

Consumer loans grew by 75 percent in 2006 as apartment prices in large cities doubled. Banks borrowed heavily from abroad to finance consumer lending and home loans growth. They made hefty profits charging their customers double-digit interest but became vulnerable to rising international interest rates and liquidity levels.

The Central Bank had to inject billions of rubles into the banking system in recent weeks as liquidity dried up due to a sell-off in Russian assets. Klepach said stabilization would take some time but ruled out a banking crisis.

"I do not think there will be a crisis in the consumer lending sector, but some banks may face a bad debt problem," Klepach said. "The correction in the banking sector development will take some time. I think the Central Bank's efforts to support liquidity levels will continue."

Government officials so far have sounded upbeat about economic growth prospects. Klepach is the first senior official to strike a more pessimistic note.

Klepach said the country would see its enormous current account surplus disappear in 2009, or even earlier, due to rapidly rising imports and would need to improve its competitiveness to cope with global challenges.

He said the new situation would require new measures in economic and monetary policy but did not elaborate.

"We have two to three years to carry out a global perestroika. … Otherwise, new global challenges may lead to significant shocks," Klepach said.