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UPDATE 3-Putin tells banks to lend more as bad loans rise

Published 06/29/2009, 12:59 PM

* Putin expects state banks to lend $16 bln more

* Don't plan summer holidays, Russian PM tells bank heads

* VTB says bad loans tripled to 6 pct since start of 2009

* VTB expects a loss this year

(Adds VTB on second share issue, provisions, shareholders)

By Dmitry Sergeyev and Daria Korsunskaya

MOSCOW, June 29 (Reuters) - Russian Prime Minister Vladimir Putin told state banks on Monday to boost the economy with up to $16 billion of fresh loans, as the country's second biggest lender complained of a three-fold rise in bad debts.

With Russia battling its first recession in a decade and foreign capital markets still virtually closed off following the global credit crunch, the country's banks are under increasing pressure to support the economy.

Putin ordered Russia's top bankers "not to plan any summer holidays" until the financing of the real economy is sorted out.

"I call on the heads of banks with state participation ... -- Sberbank, VTB, Gazprombank, Rosselkhozbank, VEB -- first of all I call upon you," Putin told a government meeting at which the bank chiefs were also present.

"The loan portfolio this year should be increased by no less than 150 billion roubles in July, by another 150 billion roubles by September 1, and by October 1 (the sum of the increases should reach) 400-500 billion roubles ($12.9-16.1 billion)."

Russia is discussing a plan for the government to recapitalise banks by issuing OFZ treasury bills to boost the balance sheets of the biggest banks, which have been hit by non-performing loans.

FEELING LIKE A JERK

VTB, Russia's second biggest lender, said on Monday the proportion of bad loans in its credit portfolio had tripled since the start of the year to 6 percent and provisions for such debt were likely to tip it into a loss in 2009.

"The absence of a loss this year is unlikely," VTB's Chief Executive Andrei Kostin told the bank's annual general meeting.

VTB, which is planning to sell up to 9 trillion shares in October, said it might not get by without a second issue next year if the economy worsens and provisions increase.

"Only God knows," Kostin told reporters after the AGM. "And one shareholder suggested I go to hell, so God and I will be parting ways."

VTB was among top Russian state firms and banks which placed shares amid the market boom in 2007, promising good returns to those taking up so-called "peoples' IPOs" thanks to their solid financial positions and state support.

Two years later VTB's shares are trading at around one quarter of their placing price.

"The only way out for you, gentlemen, is to resign and stop embarrassing yourselves," Vladimir Sinyakov, one of some 500 small shareholders at the AGM, told Kostin. Other shareholders also regularly interrupted Kostin.

"I was hypnotised. Two top state officials, Kostin and Putin were calling on me (to buy shares). I don't want to lose my money. I don't want to be a jerk," one of the minority shareholders shouted at Kostin.

Kostin took a philosophical approach.

"I also bought shares. So I'm a jerk too," he said, adding: "We are making a profit in the current environment but we erase that profit by creating provisions. However ... not all the money which we put into provisions will be lost."

VTB's larger rival, Sberbank, has also been increasing provisions, but said last week it would remain profitable this year.

Russia's central bank expects bad loans for the sector as a whole will not exceed 10-12 percent this year, but some bankers and analysts say the figure could be at least twice as high. (Editing by David Cowell, Greg Mahlich)

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