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. Last Updated: 07/27/2016

Bad Loans Could Reach 10% of Banking Sector

Russian banks facing a rise in nonperforming loans can count on further state help such as subordinated loans or more flexible accounting rules, Central Bank First Deputy Chairman Alexei Ulyukayev and Finance Minister Alexei Kudrin said at a banking conference Wednesday.

Russia's 1,200-plus banks have been hit hard by the credit crunch, the ruble's depreciation, a collapse in domestic stock markets and the first recession in a decade.

The government has asked the sector, especially state-controlled banks, to distribute anti-crisis funds and ensure that money reaches the real economy.

Kudrin said nonperforming loans to the real economy sector could hit 10 percent.

"That is a possible size for nonreturned credits, and we must prepare for this, developing instruments for increased capitalization of both first- and second-tier capital," he said, adding that the state would probably not need to buy up the banks' bad assets on a large scale.

On Tuesday, Sberbank said bad loans had risen to 2.1 percent of its credit portfolio from 1.7 percent in January.

The problem of capital ratios has arisen as banks amass collateral by lending to the real economy and take possession of assets because of corporate defaults at a time when asset values are low or falling.

Despite problems in the sector, Russia's top two lenders, Sberbank and VTB, should still pay dividends based on their 2008 performance, Kudrin and Ulyukayev said.

Ulyukayev said 10 percent of net profit would be an acceptable level for Sberbank, while for fellow state-controlled bank VTB, it would make sense to reduce dividends from the 25 percent paid in 2007.