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Russian banks need help as sanctions hit

Thursday, August 07 15:39:55

Two Russian banks hit by Western sanctions have asked for state help, potentially bringing the total bill for supporting the industry to $10 billion and piling pressure on government finances in a slowing economy.

Western debt and equity markets are now largely closed for Russian borrowers, forcing them to switch to domestic lenders, which need more liquidity to meet the extra demand.

State-controlled Rosselkhozbank and Gazprombank, in which state-controlled gas company Gazprom and state development bank VEB are co-owners, have asked for at least 117 billion roubles ($3.22 billion) in total to underpin lending, officials said today.

It was unclear when the requests were initially made, but they became public as Russia imposed retaliatory bans on most food products from the United States, the European Union and some other counties, fuelling fears of inflation and raising the prospect that local farms will need additional support to increase output.

Agriculture Minister Nikolai Fyodorov said on Thursday that the ministry had proposed boosting Rosselkhozbank with 77 billion roubles in additional capital by 2020.

"It is understandable that Rosselkhozbank ... would like even more, but our calculations stand at 77 billion," he said, adding that the measures were yet to be approved.

The government has already said it would spend 239 billion roubles ($6.6 billion) from the National Wealth Fund (NWF), which collects oil revenues, to buy out preferred shares of VTB and Rosselkhozbank to boost their capital.

Of that amount, 25 billion roubles were earmarked for Rosselkhozbank alone. It was unclear if the figure announced by Fyodorov came in addition to the 25 billion.

The NWF stood at $86.5 billion as of Aug. 1, down $1.4 billion from the previous month.

Gazprombank has approached the government with a proposal for the NWF to buy out preferred shares worth almost 40 billion roubles, the bank's First Vice-President Ekaterina Trofimova told Reuters.

She said the move was needed to support further growth of Gazprombank's loan portfolio and the bank was counting on a positive outcome.

All three banks - VTB, Gazprombank and Rosselkhozbank - are converting subordinated loans they received during the financial crisis of 2008-09 into equity to avoid redemption and paying interest.

The daily newspaper Kommersant quoted an unnamed source as saying that Gazprombank's request was "in general" approved. Trofimova declined additional comments. (Reuters)

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