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. Last Updated: 07/27/2016

Survey: Bad Loans May Increase 400%

Russian banks' bad loans will quadruple to $70 billion this year, according to a Bloomberg survey.

Nonperforming loans will increase to 12.8 percent of the 18.4 trillion rubles ($549 billion) that is owed by Russian companies and individuals by the end of this year, from 3.2 percent in March, according to the mean estimate of 17 banking analysts polled by Bloomberg in the past week. HSBC Holdings, Europe's biggest bank, expects delinquencies to reach 23 percent, Europe's highest rate after Hungary at 25 percent.

"Many small and medium-sized Russian businesses will end up defaulting, and that will slow down the recovery," said Aybek Islamov, a London-based bank analyst at HSBC.

Sberbank's bad debt will more than triple to 8.9 percent in 2009, according to the survey.

Bad Loans Estimates

Investment bankTotal Est.SberbankVTB
Alfa Bank15n/an/a
Deutsche Bank1068
Fox-Pitt Kelton12.5n/an/a
JPMorgan Chase12.51113
Morgan Stanley22.51111
Rye, Man & Gor109.510.25
Troika Dialog97.59
Source: Bloomberg
Loans in arrears at VTB Group, Russia's second-largest lender, may jump to 10.5 percent, exceeding the loan-loss reserves of 8 percent that is planned by chief executive Andrei Kostin. Yelena Litovchenko, a VTB spokeswoman, said the bank expects the reserves to be enough to cover nonperforming loans.

Leonid Slipchenko, a UralSib analyst, predicts that Russian bad loans will rise to 9.7 percent. UralSib's commercial bank reported a net loss of 1.7 billion rubles for the first quarter because of provisions for bad loans.

Bad debt makes state-controlled VTB a "candidate to lose its investment-grade rating, which would mean dilution for equity shareholders and depreciation for its bonds," said Zina Psiola, who manages about $220 million in Russian equities at Clariden Leu in Zurich. VTB is rated Baa1 by Moody's Investors Service, three levels above junk, while Standard & Poor's rates the bank two levels higher than junk at BBB.

"How high nonperforming bank loans will go, and the contagion to the rest of the economy, is critical and is likely to provide a scary backdrop to the market," said Chris Weafer, UralSib's chief strategist.