Kudrin and Aven sound the alarm on banks

President of Alfa Bank Pyotr Aven yesterday March 26 said the level of overdue loans in the Russian financial system in 2009 could reach 15-20%, and that hundreds of banks could disappear. Deputy Prime Minister Aleksei Kudrin  in separate comments put the current level of non-performing levels at already 10%.

“We can expect that the level of overdue loans for the whole system might reach 15-20 per cent” by the end of the year, Aven told the Financial Times March 26.

“Maybe the 20-30 biggest banks, including Alfa, will receive state support – we’re sure. But the future of hundreds of small banks is under big question … we believe that hundreds of banks will disappear by the end of the year,” the FT quotes Aven as saying.

Royal Bank of Scotland’s emerging market analyst Tim Ash says Aven’s comments meanthat, “we are still far from convinced that we are anywhere near the end of the adjustment process in the bigger picture credit crunch/global de-leveraging/de-globalisation process.” “We would expect a similar feed through from the real economy slowdown to banks/public finances across the CEEMEA region,” adds Ash.

Deputy Prime Minister Alexei Kudrin recently warned that non-performing loans would constitute the ‘third wave’ of the financial crisis in Russia. Yesterday Interfax reported that during a meeting with bankers Kudrin estimated the ‘real’ level of NPLs in the banking system at close to 10%. Although as of end of February, ‘official’ NPLs stood at only 3.4%, Kudrin attributed the difference to banks’ unwillingness to recognise all bad debts as such,including debts subject to restructuring.

According to the newswire, he suggested that such a level of overdue loans might provoke the situation in the sector to deteriorate further in
the near future.

VTB Capital’s Dmitry Dmitriev writes, “we believe Kudrin’s estimate to be realistic if restructured loans are also included in the overdue numbers (which they are not in the CBR’ statistics). Nevertheless, we believe that the official data will converge with Kudrin’s assessment and are reiterating our forecast of 10% NPLs in 2009 and 14% in 2010.”

Alfa president Aven, in his comments to the FT, criticised the Russian central bank for keeping refinancing rates high at 15 to 19 per cent. He said this forced commercial banks to lend on at even higher rates of 25 per cent, making loans expensive.

Aven anticipated bankruptcies hitting the banking system in the third quarter 2009, when loans start to fall due. Aven also anticipated serious changes in the ownership of industrial groups. “When we are at the bottom we shall see some very serious bankruptcies,” the FT quotes him as saying.