April 23, 2020 / 1:49 PM / a month ago

UPDATE 1-Russia warns of bad loans build-up from coronavirus crisis

(Recasts with government meeting)

By Andrey Ostroukh and Darya Korsunskaya

MOSCOW, April 23 (Reuters) - Russia’s banking system could experience a build-up of bad loans over the coming months because of the coronavirus crisis but might only feel its impact in the final part of the year, a top government official warned on Thursday.

Russia’s economy is slipping into a recession because of low oil prices and the novel coronavirus outbreak that has so far infected close to 63,000 people in the country.

Russia’s central bank and some top lenders have said the banking sector has enough liquidity to weather the crisis.

First Deputy Prime Minister Andrey Belousov warned, however, that it might only be a matter of time before Russian banks encounter difficulties.

Speaking at a video conference meeting with President Vladimir Putin and banking officials, Belousov said some banks risked accumulating bad loans and could require help later this year.

“The accumulated risks have a delayed effect, which, despite the banking system’s safety margin, can in the autumn cause the problems that we are all aware of,” he said.

To ease pressure on the banks, the central bank has temporarily authorised them not to build the additional reserves they would need in the event of bad loans.

Russian banks made a net profit of around 190 billion roubles ($2.53 billion) last month, a figure 34% higher than the average monthly net profit for banks in 2019. The profits were concentrated in the three largest banks.

Andrey Kostin, CEO of VTB, Russia’s second biggest bank, said this week that profits across the banking sector could fall sharply in the second quarter.

Other banking officials have been more upbeat about the sector’s resilience.

German Gref, the CEO of state-owned Sberbank, the country’s largest lender, has said it would remain profitable and not request state support even if Russia’s gross domestic product (GDP) fell by as much as 15% in the event oil prices sink below $10 per barrel or touch zero.

U.S. oil prices this week fell below zero for the first time ever, although they have since rallied. Russia’s flagship crude oil blend, Urals URL-E, is priced against Brent and has also come under pressure.

Gref said the banking sector would not require any assistance, at least this year.

Russia has taken measures to curb the effects of the crisis, including by easing lending requirements for banks and individuals, and earmarking 2.8% of its gross domestic product (GDP) to counter the coronavirus crisis and its fallout.

The International Monetary Fund (IMF) expects the Russian economy to contract by 5.5% this year.

The Russian central bank holds its rate-setting meeting on Friday and most analysts polled by Reuters expect it to cut the key rate by a deeper-than-usual 50 basis points to 5.50%. ($1 = 74.9150 roubles) (Additional reporting by Tatiana Voronova; writing by Gabrielle Tétrault-Farber; editing by Katya Golubkova and Barbara Lewis)

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