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. Last Updated: 07/27/2016

Group Says Bad Loans Will Destablilize Banking System

Nonperforming bank assets may become a “significant destabilizing factor” for the financial industry, the Association of Russian Banks said Monday.

Overdue loans may increase to as much as 20 percent of total lending in the first half, from about 12 percent to 13 percent at the end of last year, the association said. ARB’s membership includes the nation’s top 30 banks, including Sberbank.

The Central Bank has warned that credit risks and the possibility of an equity market bubble are the main threats to the country's economic recovery. Nonperforming consumer loans stood at 6.2 percent in December, according to Bloomberg calculations based on data released by the Central Bank on Monday. Banks are responding by reining in lending, to avoid swelling losses.

Total bank loans to companies declined 1.2 percent in December from the previous month, while retail loans fell 0.3 percent in the period, the Central Bank said.

Central Bank data underestimate the size of nonperforming debt because they don’t include the principal due, Olga Ulyanova, an analyst with Moody’s Investors Service, wrote in a note Monday. Moody’s estimates that 20 percent of outstanding loans at the end of 2009 are “problem loans,” she said.

The banking system needs to set aside between 1.25 trillion rubles ($41 billion) and 3 trillion rubles to cover its bad debt, according to the ARB's report.

The Finance Ministry probably won’t recapitalize banks using ruble debt in the first six months, Deputy Finance Minister Tatyana Nesterenko said Feb. 12. The government had previously planned to allocate 100 billion rubles to inject additional capital into banks via ruble bonds.