Translated material
Dissolving Debts
The Central Bank promised growth in lending this year
The Bank of Russia lowered its forecast for overdue debt in the first half of the year. As Alexey Simanovsky, director of the department of banking regulation and supervision of the Central Bank, said yesterday, at the beginning of the year the share of overdue loans in Russian banks amounted to 5.4%, while by July 1 it may decrease. Previously, Mr. Simanovsky stated that debt growth could reach 11% by the middle of the year. However, market participants still believe that the Central Bank is embellishing the picture. However, bad debts will not be the biggest problem for the Russian banking system this year.As Alexey Simanovsky reported, overdue debt on bank loans excluding Sberbank as of January 1, 2010 amounted to 5.4% of the banks' loan portfolio, and the share of problem loans of the fourth and fifth categories was 8.7%. At the same time, Mr. Simanovsky admits that by the end of the first half of the year the share of overdue loans will be even less: “I hope that on July 1 the share of overdue loans will be less than on January 1.”
Just three weeks ago, Alexey Simanovsky stated that based on the current trend, the share of overdue debt could grow to 9-11% of the loan portfolio by the middle of the year, and then it is expected to decline. However, Sberbank President German Gref gave a much more pessimistic forecast at the very beginning of the year: in his opinion, the “delay” will be no less than 20%.
Analysts believe that Mr. Gref's frank assessment is closer to reality. “The official share of overdue payments in the system as a whole in the medium term will not exceed 6-7%, but the real amount of debt may exceed 20%,” says the head of the retail department of a private Russian bank. - However, even this level does not threaten the stability of the banking system. Leading banks, especially sector leader Sberbank, are pursuing a very conservative lending policy and at the same time increasing the size of reserves.”
Alexey Simanovsky, meanwhile, is confident that the problem of bad assets will “gradually dissolve.” Banks experiencing certain difficulties should solve them on their own; it would be wrong to support them, he believes. “As for the options related to helping all those who for some reason do not feel very well, in my opinion, this is a very bad contribution to the creation of market discipline, to the creation of what is called management responsibility and bank owners for decisions made. The natural process of resolving the problem of bad assets for banks is the most rational way in the current situation,” Simanovsky said yesterday.
Deutsche Bank analysts believe that overdue debt in Russian banks may increase, and interest rates on loans will decrease, which will negatively affect profits.
The bank forecasts that bad debt will rise to 20% of total loans as individuals and businesses fall behind on payments on debts that were restructured in 2009. According to the International Monetary Fund, Russia needs to make more efforts to restore normal banking operations. As the fund's experts note, the actions taken to monitor and support the financial sector last year were not enough to restore confidence in the markets and resume active lending. “We recommended that the Russian Central Bank conduct a more complete assessment of the state of the banking system,” Odd Per Brekk, head of the IMF office in Russia, said last week. “It is important now to create the basis for restoring active lending, because this has not happened yet.”
However, Alexey Simanovsky yesterday clearly confirmed the presence of a downward trend in lending volumes. According to him, in January 2010, the loan portfolios of Russian banks, excluding Sberbank, decreased. “January did not show an increase in lending volume; it decreased slightly. But the lending process must resume; in the first quarter of 2010 we can see such a picture,” believes Mr. Simanovsky. According to the Central Bank, the total portfolio of loans to legal entities decreased by 0.3%, to individuals - by 0.4%.
Back in December last year, a decrease in the loan portfolio occurred not only in the retail but also in the corporate segment. “Moreover, almost all groups of banks experienced a decline. Thus, all the banks’ aspirations to increase the loan portfolio, undertaken in recent months, have not yet been crowned with success. We expect that sustainable growth of the loan portfolio in the sector will occur no earlier than the summer months of 2010, and until then the total volume of the portfolio will fluctuate stably within plus or minus 0.5% per month,” experts from National Bank Trust note.
However, Mr. Simanovsky believes that the overall situation in the financial sector is optimistic: “The economy is reviving, banks have high capital adequacy, a lot of short-term liquidity, there is an opportunity for lending, the interest rate is trending downward, bankers are concerned about the level of credit risk , are gradually decreasing." He also said that, according to preliminary data, in January Russian banks increased deposits of individuals excluding Sberbank by 1.6%. Analysts, meanwhile, point out that growth in the deposit base was observed throughout 2009 - it is explained by an equally sharp outflow at the end of 2008, at the height of the financial crisis.