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Ever More Russians Unable To Repay Bank Loans

Ever more Russians who a while ago took bank loans are unable to honor their liabilities. Statistics indicate the first half of the year saw a considerable worsening of the situation on the lending market, which is fraught with a new banking crisis.

The Bank of Russia said the share of bad debts on retail loans in the first half of the year grew by more than 50 percent to above 10 percent. In the corporate loans segment of the market the situation is only slightly better. The share of bad debts in January-June was up from 3.6 percent to 8.3 percent. This concerns only those debts the creditors themselves agree to recognize as hopeless. Experts do not rule out that the real amount of bad loans has approached a critical level of 15-20 percent.

The aggregate loans Russian banks have extended to corporate and retail borrowers on June 1 stood at 17.1 trillion rubles. Up to 20 percent (according to some experts, up to 30 percent) of this debt may drift into the problem area.

According to the Federal Service of Court Bailiffs, in the first half of this year it received over one million loan collection cases to be acted on, twice the amount last year. One in sixty loans has to be recovered under a court ruling. Most of the current debt recovery cases were opened against individuals.

The chief of the credit products group BSGV, Yekaterina Zebelina, is quoted by the daily Kommersant as saying the banks will manage to reschedule half of the overdue loans and to sell some part of the debts to collectors.

"In the end no more than 20 percent of all defaulted loans reach courts of law," she says.

For most analysts such results were not a surprise.

"Experts predicted from the outset the state of affairs in the banking sector will aggravate, mostly due to a surge in accounts receivable," the electronic newspaper Obshchaya Gazeta quotes the science doyen of the Higher School of Economics, Yevgeny Yasin, as saying.

Amid the crisis enterprises were forced to either borrow at a very high interest rate or to curtail or stop production. It is quite natural that many companies that had taken loans from banks have proved unable to repay them. Yasin does not rule out that in reality the situation on the lending market may prove far worse than it is painted by the Bank of Russia. In his opinion, a large number of banks deliberately understate the percentage of bad or problem credits in order to not spoil statistics and their own reputation.

Ten percent of bad loans is a threat to the banking system, and 15-20 percent may be regarded as the red line where a banking crisis begins.

"For Russia this is the first instance of snowballing defaults on loans. Everybody is waiting for the autumn. Then it will be possible to say whether the banking system and the population will stand the test or not," the periodical quotes the deputy director of the Institute of World Economy and International Relations under the Russian Academy of Sciences, Yevgeny Gontmakher, as saying. The expert predicts no major social consequences, though.

Yasin is certain that a crisis of the banking system can be avoided on the condition oil prices remain high. The government will have the reserves to support problem banks. At the same time he believes that the authorities today have the temptation to start saving lending institutions by turning on the money-printing machines. In a situation like that the Russian economy will have a guaranteed inflation of about 13 percent and an 18-20 percent interest rate on loans, making them unaffordable for retail and corporate clients.

The effects of a new crisis that may hit the Russian banking system will be far more devastating than the previous slumps, says the Association of Regional Banks.

The URA.ru on-line periodical quotes the association as saying non-payments on credits may prevent the banks from honoring their liabilities. Moreover, the liabilities to individuals will not be secured by the deposits insurance fund. This will throw the Russian economy back by at least fifteen years and force the financial authorities to resort to non-market methods of financing the economy, used back in the early 1990s - direct budget loans, state guarantees to commodity producers and regular write-offs of budget debts.

The Association of Regional Banks has published a revised version of its anti-crisis initiatives, which explains what the federal authorities should do to prevent the emergence in Russia of a faulty economic model of direct, non-market distribution of budget resources - ineffective, not competitive and lacking any development potential in the post-crisis period.

The risks the bankers point to may emerge "in case the problem of overdue debts is ignored and there is a noticeable reduction in the capital of lending organizations in the medium term." And those risks are more than just serious, the bankers say.

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