About That Indigenous Financial Market Thing. It ain’t doing so well.
Russian banks need $20 billion to $80 billion in extra capital this year, a senior executive at ratings agency Fitch said, although the head of Russia’s top private bank said the need could be as high as $130 billion.
The forecasts follow a recent assessments by ratings agency Moody’s, which put the need at around $40 billion, and the central bank, which said the need for extra capital would not exceed 500 billion roubles ($16.07 billion) this year.
“We expect loans quality deterioration to be serious enough. We think the banks will need additional capital one way or another on a one-year horizon,” Alexander Danilov, senior director at Fitch’s Russian office, told a conference on Tuesday.
Danilov said the agency’s own stress test had shown that, in an optimistic scenario, non-performing loans (NPL) would reach 15 percent of banks’ loan portfolio by year-end. In the base scenario it would rise to 25 percent, and in a pessimistic scenario 40 percent.
Speaking at a separate conference, Pyotr Aven, president of Alfa Bank, Russia’s largest private bank, said the government must boost its bank recapitalisation plans 10-fold to 10 percent of gross domestic product as defaults may hit $130 billion in the next 12 months.
Aven, known for his bearish views of the impact of the crisis on the banking sector, told a conference the government’s current measures to support the banking sector were not enough.
“The banking sector needs up to 10 percent of GDP, otherwise we won’t restart,” Aven told a conference.
“We are now going down the Japanese path when problems are simply masked… We need to begin from scratch… We are not talking about liquidity, we are talking about capital, about long-term money,” he said.
Earlier, Standard and Poor’s said problem loans could soar to 35-50 percent of total lending in Russia, Ukraine and Kazakhstan, though actual loan losses would not be more than half that level in Russia [ID:nLJ957879].
Twenty-five to forty percent to fifty percent problem loans? That’s apocalyptic.
But don’t worry! Putin has it all under control. He’s ordering banks to invest $16 billion dollars in struggling Russian companies, and telling bankers not to take any holidays until they have implemented his orders:
Russian Prime Minister Vladimir Putin told state-run banks to expedite loans to companies to help stem a financial crisis that will force the government to run deficits for at least three years.
Putin called on banks such as OAO Sberbank and VTB Group to boost lending by as much as 500 billion rubles ($16 billion) by October. The government will guarantee 300 billion rubles of the total, he said.
“The government expects that banks will consistently expand lending for the priority industries and reduce borrowing costs,” Putin said today on state television.
Russia’s plan to use state guarantees to boost lending may exacerbate liquidity risks as state banks expand their portfolios through business loans to unsustainable projects, Trust Investment Bank said.
Lenders may require additional support from Russia’s central bank after Prime Minister Vladimir Putin yesterday instructed banks such as OAO Sberbank and VTB Group to boost lending by as much as 500 billion rubles ($16 billion) in the next three months, Moscow-based Trust said in a report today.
The program, which allocates 300 billion rubles in state guarantees on corporate loans, also runs the risk of “dragging out the lives of ineffective companies,” according to the report.
“Banks should be extremely cautious in extending credit, providing it only to those enterprises which have significant potential for development and improving their effectiveness in the future,” Trust said in the report.
And regardless, this Hail Mary is unlikely to make a material difference in an cratering economy. Russia’s own Economic Development Ministry just posted the low bid in the Dutch auction of forecasts of Russian economic performance in 2009, undercutting the World Bank’s 7.9 percent decline projection:
The Economic Development Ministry has revised its forecast for gross domestic product growth, predicting that the economy will shrink 8.5 percent this year, compared with 6 percent to 8 percent as forecast before, Prime-Tass cited a source in the ministry as saying.
Last week, the World Bank put the contraction at 7.9 percent, compared with 4.5 percent that it forecast earlier, while the Organization for Economic Cooperation and Development estimated a 6.8 percent drop, which is greater than the 5.6 percent it estimated earlier.
The ministry was more optimistic in its inflation forecast. It downgraded the inflation estimate for the year to 12 percent to 12.5 percent, down from 13 percent.
It will be interesting to see how well and how long all the machismo Putin theatrics involving everything from pork chop prices to wage arrears in monotowns to banks will wear in the face of these grim realities. All of these little plays are intended to demonstrate his control and power. If, as is likely, the economy continues to implode, they will only demonstrate his impotence.