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Russian Banks Face $213 Billion Of Bad Assets

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June 17 (Bloomberg) -- OAO Sberbank, VTB Group and Russia’s other lenders are facing a surge in “troubled assets†that may total $213 billion, Standard & Poor’s said.

As much as 38 percent of all assets held by Russian banks, including restructured loans, may become problematic by the end of 2011, the credit-ratings service said in a report today.

“The extent of the damage and its impact on the Russian banking industry will depend, in our view, on government policies to support banks and shore up troubled industrial enterprises, including state-owned companies,†said Scott Bugie, an S&P analyst.

Russia’s economy, the world’s eighth largest according to the International Monetary Fund, is contracting for the first time in a decade as the global recession damps demand for oil and other commodities the country exports. Industrial production contracted last month at a record annual rate of 17.1 percent.

Russian banks may have to write off as much as 14 percent of all loans, or $80 billion, over the next 2 1/2 years as companies struggle to repay debt, Bugie said.

State-run Sberbank and VTB, “which together represent almost half of domestic credit to the private sector, will influence greatly the future direction of the industry and its ultimate level of system-wide problem assets and credit losses,†S&P said.

The increase in problem loans will have “significant†implications for the ratings of Russian banks, which will be reviewed in the coming weeks, S&P said.

S&P said in a later note today that it downgraded Russia’s ZAO Raiffeisenbank, ZAO Unicredit Bank, OAO Promsvyazbank and OAO Bank Uralsib and put on negative watch seven more Russian banks including the largest non-state lender, Alfa Bank, and OAO Gazprombank, the lending arm of Russia’s natural-gas exporter.

Austrian, German and Italian banks in deep trouble due to exposure to Eastern Europe in general, and Russia in particular.

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