20 Apr 2010 19:39

Govt not planning to cut VEB subordinated loan rates

MOSCOW. April 20 (Interfax) - The Russian government has decided not to reduce rates on a deposit with VEB, which funds were issued in subordinated credits, Deputy Prime Minister Alexei Kudrin, who is also the country's finance minister, told journalists on Tuesday.

"After serious discussion it was decided that we are not going to make any proposals to reduce the rate on the deposit with VEB, which was given out in the form of subordinated credits," Kudrin said.

"This is because the main goal of the subordinated loans was to recapitalizae the banking system. They had special status and were not simply liquidity, but loans that increased bank capital," he said.

The subordinated loans were aimed at preventing bank capital from shrinking in the event of an increase in the volume of bad loans. "At present the worst fears about an increase in bad loans have been overcome. The bad loans are diminishing, the goal of the subordinated loans has been achieved," Kudrin said.

The second goal of the subordinated loans was to boost liquidity, which is also no longer a pressing matter. "At the present time the liquidity is available and at lower rates," he said.

Reducing the rate on deposits from the National Welfare Fund (NWF), will reduce the fund's earnings, which are used to support the pension system.

"We don't want to improve the position [of the banks] by reducing rates, reducing the earnings of the NWF," he said.