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UPDATE 2-Russia faces new risks from banking sector-c.bank

Published 01/30/2009, 08:19 AM

(Adds Russian deputy prime minister remarks, analyst's comment)

MOSCOW, Jan 30 (Reuters) - Russia faces the risk of a new wave of instability in the future that may be linked to the non-payment of loans to commercial banks, central bank chairman Sergei Ignatyev said on Friday.

Russia's 1000-plus banking system was severely hit by the stock market collapse last September and the quality of loan portfolios has been deteriorating since as the economy faces a contraction for the first time in a decade.

"In principle such risks (of a new wave of instability) exist, and they are linked to the growth of unpaid loans to commercial banks," Ignatyev told the Duma, Russia's lower house of parliament.

"We should be ready for such a turn of events and for the additional capitalisation of some banks," Ignatyev said.

Russia's government plans to inject 900 billion roubles ($27.10 billion) into commercial banks' capital as rising provisions and bad loans diminish their profits and put their capital adequacy ratio under pressure.

The government repeatedly said the banks drawing money from state funds should channel financial resources into the real economy to help companies survive the period of severe tightness in the credit markets.

Russian deputy prime minister Igor Shuvalov told reporters on Friday that Russia has ordered state-controlled banks to raise loan portfolios by at least 2 percent per month.

His spokesman later said this directive concerned loans to "small and medium companies".

Olga Veselova an analyst at Troika Dialog told Reuters that state-controlled VTB , Russia's second biggest lender, is fully capable of increasing its SME loans portfolio by 27 percent in 2009 despite the crisis.

"It is important to understand whether the directive is a strict order or just a wish. After all, banks are business-driven and there are shareholders apart from the state," Veselova said.

State-controlled banks have been the main recipients of government funding. Sberbank , Russia's largest lender, received a 500 billion rouble subordinated loan from the central bank last year and will likely get the same cash injection later in 2009.

The central bank said earlier it was expecting the share of non-performing loans in commercial banks' loan portfolios to rise to 4.0-4.5 percent in the first quarter of 2009, up from 3.8 percent as of Jan. 1.

Banks' profitability has been under pressure as they have to raise provisions and write down dead debts. The central bank expects loan provisions to rise to 5.5-6.0 percent by April 1 of this year from 4.9-5.0 percent as of Jan. 1. (Reporting by Gleb Bryanski, writing by Dmitry Sergeyev, editing by Victoria Main)

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