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Russian Recession Risk Worsened As Banks Skimp On Loans

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http://www.bloomberg.com/news/2013-08-18/russian-recession-risk-worsened-as-banks-skimp-on-loans-economy.html

Elena Dibova was ready to pledge her 15 million-ruble ($456,000) apartment to get financing for her metal-safe business. As her bank dragged its feet, she hit the roadblock companies across Russia face as the economy sinks.

Corporate-lending growth has plunged as the weaker economy prompts banks to demand more collateral and as borrowers shun interest rates that can top 20 percent. As VTB24, the retail arm of Russia’s second-largest lender, expanded its list of demands, Dibova borrowed 2.5 million rubles from her business partners so she could join a tender to supply the Moscow police.

“I’d have an entirely different strategy for developing my business if money was easily accessible,” said Dibova, 48, who also halted investments and canceled a holiday after giving up on her bank. “I’d have expanded or would have built something, but it’s impossible with loans costing so much.”

President Vladimir Putin is seeking ways to shore up the economy as corporate credit dries up amid policy makers’ reluctance to cut interest rates in the face of above-target inflation. The economy grew 1.2 percent from a year earlier in the second quarter, the slowest pace since 2009, as investment shriveled. That may mean Russia has entered its second recession in five years, according London-based to Capital Economics Ltd.

“Corporate lending has been decelerating for the last six to nine months,” Ivan Tchakarov, chief economist at Renaissance Capital, said in a phone interview. “It’s hard for companies that aren’t big, quasi-sovereign companies to access credit.”

Russian cronyism starting to hit the functioning of the wider market?

You need to be making a lot of income to be supporting a loan with an interest rate at 20%.

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A metal safe making business? Sounds like a good idea.

....and surely many thousands of Russians will take their money out before the 'great London crash'?

When the Russian government clamped down after the protests last year, they found millions of dollars in cash in one of the celebrity activist's apartments.

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Why all the anti russia news all of a sudden?

Stephen fry upset he cant prance around half naked with a multi colour flag blowing kisses at the president and suddenly the press seems to put Russia in the same category as Iran.

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A metal safe making business? Sounds like a good idea.

....and surely many thousands of Russians will take their money out before the 'great London crash'?

She started the business 22 years ago. A lot of alarming things about malinvestment in there. No wonder the Russian banks not keen to lend when there seems to be consumer retrenchment in the domestic economy. When house prices look to have already been bid right up ($456,000 apartment). Maybe more opportunities for export but weight of her products an issue versus other competitors in home countries.

Is it financing she wants to expand, or to roll over existing debt positions? If she's done alright over 22 years, and thinks it will see her through to retirement in its current form, why put her home at risk for the expansion.

Elena Dibova was ready to pledge her 15 million-ruble ($456,000) apartment to get financing for her metal-safe business. As her bank dragged its feet, she hit the roadblock companies across Russia face as the economy sinks.

...“I’d have an entirely different strategy for developing my business if money was easily accessible,” said Dibova, 48, who also halted investments and cancelled a holiday after giving up on her bank. “I’d have expanded or would have built something, but it’s impossible with loans costing so much.”

.. The yield on 10-year government debt has risen to 7.4 percent from 6.9 percent at end-2012 as U.S. Federal Reserve Chairman Ben S. Bernanke said the central bank may scale back bond purchases.

The plight of smaller businesses hasn’t gone unnoticed by the president, who pledged last year to raise their share of overall employment to at least half from 9 percent at present.

.... That’s a phenomenon Mikhail Koltunov’s all too familiar with. The 31-year-old entrepreneur had to pledge his Kia car as well as his father’s Hyundai and his business partner’s Skoda to get a 5 million-ruble loan to buy a new office for his printing company in Rostov-on-Don in southern Russia.

The collateral allowed him to secure an interest rate of 14 percent from his hometown bank, Center-Invest, cheaper than the 18 percent to 19 percent he’s paying the country’s biggest lender, OAO Sberbank, for 2 million rubles of unsecured loans and 21 percent he’s paying to borrow 800,000 rubles from VTB24.

Lenders need to offer terms that allow companies to prosper and make healthy profits, according to Koltunov, who employs eight people. “But banks don’t trust small businesses.”

Back in Moscow, high loan rates have curbed the enthusiasm for enterprise that Dibova had when she started her safe-making company 22 years ago.

“It’s not a business any longer,” she said. “It will just see me through to retirement.”

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