24 Jul 2009 13:00

Volume of overdue loans in Russia could reach $130 bln in 12 mths

MOSCOW. July 24 (Interfax) - The volume of overdue loans in Russian bank portfolios could reach $130 billion in the next 12 months, Alfa Bank chief economist Natalya Orlova said in a note to investors.

Russian companies will post profits totaling about $70 billion in 2009, while they must repay $200 billion in loan principal in the next 12 months, she said. The $130-billion difference can be viewed as potential overdue debt for the banks representing 30% of their loan portfolios, she said. That suggests bank capital will be entirely used up in the coming 12 months.

If government measures to recapitalize the banks, which are only available to the biggest banks, the shortfall is $60 billion.

Unless that shortfall is made good, the banking sector can expect zero profits in the coming two years, since the banks would restore their capital position from operating revenue.

According to the Russian-standard accounting statements at the banks, the share of overdue loans is just 4.4%. But that is a deceptively low figure due to the loan restructuring that has gone on.

The share of loans maturing after more than one year rose to 61% in May from 53%-57% last fall. Alfa Bank believes that the growth in the volume of long-term loans is due to restructuring and that about $20 billion in outstanding loans or 5% of the total are actually bad, Orlova said.

The bad loans embedded in bank balance sheets and the shortage of long-term financing is holding back a recovery in banking activity, she said.