Russia's government pledged more cash for banks in a new bid to kick-start corporate lending during the country's biggest financial test since the 1998 default.
Russian President Dmitry Medvedev said on Tuesday that the country's biggest banks should get 950 billion rubles ($36 billion) of loans for five years to help unfreeze credit markets. State-run OAO Sberbank and VTB Group should get 500 billion rubles and 200 billion rubles, respectively, Medvedev said at a meeting with senior finance officials in the Kremlin.
“To prevent events connected with insufficient stability of certain banks, we are taking extra serious measures,” Finance Minister Alexei Kudrin told reporters after the meeting. “This greatly improves the state of the banking system for any other operations, supporting the real sector and lending by banks to each other.”
Russia has pledged to make about $190 billion available to banks and companies with loans, cash auctions and tax cuts in an effort to maintain a decade-long economic boom. “Panic and capitulation” by investors around the world contributed to yesterday's record 19 per cent decline in Russia's two main stock indexes, Renaissance Capital research chief Roland Nash said.
New Measures: “The previous measures aimed to stabilize the situation with liquidity,” said Stanislav Ponomarenko, head of financial markets research at ING Bank NV in Moscow. The “money perhaps wasn't distributed to all who needed it. The new measures aim to improve the situation in the medium term, support economic growth.”
The Finance Ministry pledged $44 billion for OAO Sberbank, VTB Group and OAO Gazprombank on Sept 17 on the understanding that the funds would be used to end a seizure on money markets.
The global credit crunch may shave 1 percentage point off Russian growth next year, meaning the economy may expand as little as 5.7 per cent, the Finance Ministry estimated.
The government will ask lawmakers for permission to use money from the $562.8 billion of gold and foreign currency reserves, which include Russia's oil funds, to pay for the loans announced on Tuesday, Kudrin said. The loans “will allow banks' capital to be improved,” he said.
The government is seeking to get 450 billion rubles of 950 billion rubles from one of its two sovereign oil funds to channel to VTB, Russian Agricultural Bank and other lenders.
The central bank will use its “own resources” to loan 500 billion rubles to Sberbank, according to Kudrin. The government has yet to decide which of the funds to tap, Kudrin said.
