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. Last Updated: 07/27/2016

Government to Cut Bank Support, Citing Sector Improvement

The government said it would slash support for banks as the worst was over for the sector, a notion supported by VTB, forecasting that its loss would shrink in the second half.

Prime Minister Vladimir Putin said the government would more than halve the funds aimed to support banks in 2010 to 100 billion rubles ($3.41 billion), citing signs of recovery in the sector.

"We had allocated 250 billion rubles to support the banking sector in 2010. The Central Bank cut its refinance rate effective from today. It is another sign that the situation in the financial sphere is normalizing," he said, Interfax reported.

The Central Bank on Thursday announced its eighth interest rate cut since April, reducing the benchmark refinancing rate to a historic low of 9.5 percent. The cut came a day after data showed that October would likely be the third month of zero inflation.

The 150 billion rubles cut from the allocation for banks will be channeled into an anti-crisis fund.

Russian banks are struggling with losses as bad loans erase their profits and put a pressure on capital.

State-controlled VTB said  Friday that it expected its net loss in the second half of 2009 to be much lower than in the first half, when the bank lost 38 billion rubles

Sberbank said it expected only a tiny profit this year, and VTB has said a net loss is inevitable. However, both forecast much better results in 2010.

"The loss will be decreasing. And we expect it to be much lower than in the first half of the year," VTB chief executive Andrei Kostin said.

The government has already injected 180 billion rubles into VTB's capital in September 2009, as the only buyer of the bank's additional share issue.

The government had planned to issue a total of 250 billion rubles in 2010 in special bonds for bank capital injections to help them plug the holes in their books.