26.03.09

The government should pay close attention to banks’ influence on the real sector, Russian President Dmitry Medvedev said on Monday. He came out against banks seeking early debt repayment, accusing them of corporate egoism and urging them to restrain their greedy appetites. The government cannot sacrifice whole companies and their staff to satisfy the appetites of separate banks, Medvedev emphasized.

The government should prevent creditors from bankrupting large companies, the president said at his meeting with First Deputy Prime Minister Igor Shuvalov on Monday. “It is an unacceptable situation for a creditor to stop the work of a large corporation, even if the creditor’s claims are lawful,” he was quoted as saying by Prime TASS. Medvedev said he had raised the issue at a recent meeting of the State Council: “I advised them to use state coercion: you have to either change the laws or take an individual approach in each case. But we cannot sacrifice the fate of whole companies and the work of multi-thousand staff to satisfy the ambitions of certain banks. It is time to abandon corporate egoism. This is something our colleagues do not understand; we have to consider this problem from a different perspective,” he underlined.

Shuvalov assured the president that the government would be acting in the same spirit, also pointing out “the unprecedented support measures” to help credit institutions. “We understand the problems faced by banks, and we are taking the necessary measures to help the banking sector make it through this difficult time. But at the same time, we hope that banks will provide loans on better terms for borrowers,” Shuvalov emphasized.

Yet, the largest lenders to the real sector do not apply Medvedev’s observation to themselves. VTB’s officers told RBC Daily that their bank adopted a balanced approach to borrowers, respecting all factors, including social ones. “In some cases, however, the bank cannot accept borrowers’ risks in full. This is when we hope for state support in the form of government guarantees or other tools to lower risks for our bank,” a spokesman for VTB explained. His colleagues at Rosbank also said that their bank had always pursued a balanced policy on corporate clients. Alfa-Bank, Nomos Bank and Gazprombank refused to comment on the issue.

Experts say the government has enough resources to dissuade banks from bankrupting the country’s leading corporations. The government can put legal pressure on banks, according to Vladislav Kochetkov, an analyst at Finam. “The government can oblige state banks to not bankrupt the real sector,” he maintained. In addition, the Central Bank can take a selective approach to debt refinancing applications and only give the green light to cooperative banks. “State banks could also restructure the debts of real sector companies,” suggested Yaroslav Lissovolik, chief economist at Deutsche Bank in Russia. Kochetkov expressed concern that banks could factor the bankruptcy risk into their loan interest rates. “Corporate loans are now available at 30 percent per annum, but interest rates might climb to 50 percent. No reasonable borrower would take such loans - if the borrower intends to repay them, of course,” he noted.

Among other things, Medvedev urged the government to speed up the issuance of state guarantees to strategic companies. Indeed, the decision on state guarantees was passed back in October 2008, but not one such guarantee has been granted yet. “This must be done quickly, otherwise some companies might be forced to stop operations,” Medvedev warned.

According to Shuvalov, a commission to boost the country’s economic stability considered applications from 26 different strategic companies, who together requested over RUB 350 billion (approx. $10.14bn) in state support and RUB 213 billion (approx. $6.2bn) in guarantees. The government has already approved guarantees worth RUB 47.5 billion (approx. $1.4bn). “All companies included on the list of strategic corporations will receive government support,” he stressed.

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Source: Analytical department of RIA RosBusinessConsulting