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. Last Updated: 07/27/2016

Zubkov Slams Domestic Lenders

Itar-TassPenza Governor Vasily Bochkaryov, left, and Heath and Social Development Minister Tatyana Golikova at the Cabinet.
Prime Minister Viktor Zubkov on Thursday chastised Russian banks for failing to offer credit to domestic companies and said it was a "disgrace" they had to turn to foreign banks for loans.

Zubkov, chairing his first Cabinet meeting since the government reshuffle, cited the example of a paper factory in the Penza region that could not obtain credit from state-controlled VTB as evidence that tough lending policies were forcing firms to borrow heavily from the West.

He ordered Finance Minister Alexei Kudrin, who was promoted Monday to the rank of deputy prime minister, to investigate.

"That's a disgrace, I am instructing Alexei Leonidovich [Kudrin] to sort out the situation," Zubkov said, Interfax reported. Zubkov said an official at the Mayak paper factory brought the case to his attention during his visit to the Penza region Wednesday.

"They went to VTB for many months asking for loans, but they were refused, even after being promised the loan at a 14 percent interest rate. At last, the factory obtained credit from a Czech bank at 4.5 percent," Zubkov said.

"This is disgraceful," he said, and suggested that the indifference of Russian banks had led to huge borrowings from Western lenders. "Russian banks pay no attention to the needs of Russian industries," said Zubkov, who until his appointment last week headed the Federal Financial Monitoring Service.

VTB chief executive Andrei Kostin promised Thursday to look into the Penza case but said the loan received by the paper mill was backed by a Czech export guarantee and was charged interest at less than a market rate.

"We are a commercial organization," Kostin told reporters. "We can only operate on the market."

Zubkov's comments received a mixed reaction, with some commentators backing his call for more domestic investment by Russian banks, while others said the market needed the extra competition offered by foreign lenders.

Zubkov's comments were a "victory for common sense," said Alexander Kondrashov, representative of the Association of Russian Banks, adding that the association had pushed for the government to release "sterilized funds" into the economy.

"We made several appeals to the previous leadership that all financial resources that were stacked in various foreign companies, including the pension, social and stabilization funds, must be released into circulation," Kondrashov said. "Without that, our financially strapped banks could not finance industrial development."

Ivan Manayenko, a banking analyst at Veles Capital, said Russian banks were not well placed to lend to domestic industry because of their low capitalization and a lack of competition in the domestic loan market.

"Local banks still find it more profitable to issue loans in small packages to a number of smaller firms than to give large amounts to a big company or factory," Manayenko said. "With more active competition and the entry of foreign banks into the Russian loan market, the situation will improve."

Leonid Slipchenko, a banking analyst at UralSib, said that contrary to Zubkov's sweeping statement about the indifference of Russian banks, most were jostling to win and retain clients among local firms.

"If a consumer retail outlet is competing with a paper factory for loans, common sense dictates that the retailer gets it," Slipchenko said, adding that the case did not necessarily imply a trend in the wider banking sector.

Staff Writer Catrina Stewart contributed to this report.