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. Last Updated: 07/27/2016

VTB's Finance Costs Up on Credit Crunch

VTB Group's borrowing costs on $5 billion in loans and bonds this year will rise by 1 percentage point higher than on current debt, but a senior VTB executive denied on Tuesday that the expense would be passed on to the bank's clients.

People attending a meeting between the bank and analysts Monday said the bank could consider hiking its corporate lending rates, Interfax reported.

The bank, which raised $8 billion in an initial public offering earlier this year, has so far raised 50 percent of its planned $10 billion in finance, VTB bank vice president Natalya Loginova said in e-mailed replies to questions Tuesday.

Loginova said the borrowings would only finance newly generated loans and would not be spent on refinancing.

The bank will be looking for a "window of opportunity," however, in light of the "current volatility of the global credit markets," she said.

Loginova said VTB could issue a dollar-dominated eurobond and would also contemplate alternative sources of financing in the syndicated loan market as well as spreading its loans among different currencies.

Loginova maintained Tuesday that the bank would keep its lending margins stable, even though its rates would incorporate its borrowing costs.

Analysts said Tuesday that VTB's higher borrowing rate would not add to the liquidity problems caused by the spillover from the U.S. subprime mortgage crisis.

Speaking at a banking conference in Frankfurt on Tuesday, VTB Group CEO Andrei Kostin also said he did not anticipate that the subprime crisis would impact the country's banking sector, Dow Jones reported.

Kostin told reporters that Russian banks had domestic access to capital to optimize liquidity, Dow Jones said.

In the wake of the liquidity crisis, Russian banks have been limited by costlier access to foreign capital, however.

"There are a number of Russian companies that have postponed their borrowing," Kostin said, Dow Jones reported.

VTB also does not plan to do a secondary share sale until after 2008, Kostin said. "We have enough capital for our ambitious growth plans," he said.

Ivan Manayenko, a banking analyst with Veles Capital, said VTB's higher borrowing costs would not affect the bank's corporate clients, because the interest rate was within the bank's absorbable lending limit.

"VTB's position remains stable," Manayenko said. "Most of the funds raised will be used to gain market share at the expense of Sberbank, especially in consumer and mortgage loans."

Olga Kiselyova, a banking analyst for Troika Dialog, said the VTB borrowing was needed to keep up its current rate of growth in retail loans and to finance acquisitions in the CIS.

n VTB will cut its 5 percent stake in the European Aeronautic Defense and Space Company significantly within the next two to three months, Kostin said Tuesday. "Because the market was concerned about our exposure to [EADS], we will substantially reduce our exposure to EADS within the next two or three months," he told journalists.

MT, Reuters, Bloomberg