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Fitch's Warning Over Russian Bank Loans

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The agency said a tenth of all bank loans have already gone bad and the final tally would rise to 40pc before the crisis is over under its “pessimistic scenarioâ€.

James Watson, Fitch’s Russia analyst, said the loss ratios were significantly worse that anything seen so far in Western countries, though not as bad as in Kazakhstan, Ukraine and Latvia. Even under Fitch’s base case, bad loans will reach 25pc and require $22bn in fresh capital.

Vladimir Putin, Russia’s prime minister, this week ordered banks to step up lending as deepening social unrest increasingly rattles the Kremlin.

“I am asking the heads of financial institutions to control this situation and not to plan any summer holidays until this has been dealt with as it should,†he said.

Russia’s economy is expected to contract by 8.5pc this year despite the commodity rebound. Industrial output is still 15pc below last year’s levels. The budget deficit is ballooning towards 6pc of GDP, although the exact oil price is crucial. Each $1 rise in crude adds $10bn to state revenues.

There is little danger of a systemic banking crisis or a repeat of the 1998 default since the Kremlin still has deep pockets. It is drawing up plans to recapitalise banks by swapping state debt for preference shares.

Fitch said the nation’s four big banks have already raised $24bn in capital.

Mr Watson said it was hard to gauge the risk since data is thin, and bank disclosure “does not always capture all asset quality problemsâ€.

Russia’s saving grace is that most debt is in roubles.

“This isn’t like other parts of Eastern Europe where people borrowed up to the hilt in euros and Swiss francs,†he said.

The banks must roll over $57bn foreign debt year, a modest figure set against Russia’s $400bn foreign reserves.

Increasing lending is obviously very dangerous if the oil price collapses Russia is going to be in big trouble.

Once more we have a country taking the quick easy fix of debt expansion, the very reason why we are all in this mess in the first place.

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And where will this 60billion come from pray tell

i say let all the worlds loss making banks merge into giant too big to fail monster that forever feeds off the workers slaves

oh hang on thats happened by stealth already

edit how come strikethrough doesnt work

Edited by lowrentyieldmakessense(honest!)
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