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. Last Updated: 07/27/2016

Overdue Bank Loans Inch Up to 5.5%


Overdue bank loans reached 5.5 percent of total lending in July, compared with 5 percent a month earlier, the Central Bank said Tuesday, as the worst economic downturn on record undermined households’ and businesses’ ability to service debt.

Overdue corporate loans jumped to 5.3 percent in July from 4.8 percent in June, while delinquent consumer loans rose to 6 percent from 5.7 percent. Lenders set aside 1.5 trillion rubles ($46.1 billion) to cover overdue debt, an increase of 6.9 percent compared with a month earlier.

“We take a fairly negative view of July’s results, taking into account overall figures for the first seven months of the year, and foresee that banks’ ability to generate profit from their core activities could well gradually wither away, which would demand another bout of intervention from the authorities,” said Vladislav Sidorov, an analyst at Trust Investment Bank in Moscow.

The government approved 300 billion rubles in loan guarantees and unveiled a program to swap as much as 210 billion rubles of bonds for shares in banks next year to help unlock lending. Prime Minister Vladimir Putin called on state banks in late June to increase total loans by between 400 billion rubles and 500 billion rubles by October.  

Banks shrank their corporate loan books by 0.2 percent in July, the smallest decrease in three months. Lending to consumers dropped 0.4 percent for the sixth consecutive monthly decline. The sector’s total assets gained 0.2 percent.

Credit conditions eased as banks loaned money to companies at the lowest rates in nine months. The average interest rate in July was 14.7 percent, compared with 15.4 percent in June, the Central Bank said last week.

The Central Bank has cut its main interest rates five times since April 24, the first reductions since 2007. The refinancing rate was lowered to 10.75 percent on Aug. 7.

The banking sector’s total equity capital rose for the first time in three months, gaining 1.8 percent in July after contracting for the first time on record in the previous two months, the Central Bank said in the report.  

Retail deposits slowed their increase, adding 1.9 percent after rising 2.8 percent in June, while corporate accounts lost 0.7 percent after jumping 4.2 percent in June for the biggest gain since last December.

“Non-performing-loan growth is slowing down and will peak sooner and at lower levels than previously feared,” Bob Kommers and Yulia Rusanova, analysts for Deutsche Bank, said in a report Tuesday. Delinquent loans will peak at 11 percent of all lending next year, according to Deutsche Bank.

Russian lenders have built up sufficient provisions for deteriorating assets, increasing the money set aside to cover non-performing loans to 7.9 percent of total lending from 4 percent in the third quarter of last year, according to Deutsche Bank.