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Russia Plans To Inject $27 Billion Into Banks

Sberbank is Russia's top lender.
MOSCOW (Reuters) -- Russia plans a 900 billion-ruble ($27.4 billion) capital injection for commercial banks hit by the economic crisis, with state-controlled lenders set to receive the largest share, government sources have said.

Sberbank, Russia's biggest lender, was likely to receive a 500 billion-ruble subordinated government loan, one source told Reuters, citing a decision taken at a meeting of the government's anticrisis committee.

"Sberbank has no urgent need for new capital, but this could change depending on the increasing share of nonperforming loans and the state of the banking sector," Troika Dialog analyst Olga Veselova said.

Russia's government has already allocated over $200 billion, spending some of the oil wealth accumulated over the past decade, to cushion an economy widely forecast to be heading into recession this year.

Major players among the country's 1,000-plus banks have been charged with ensuring the cash reaches the real economy, keeping money markets ticking over and filling holes left by the dearth of foreign funding during the global credit crunch.

The government source said another state-controlled bank, No. 2 Russian lender VTB, would receive 200 billion rubles as part of the latest rescue package. Other commercial banks would share 100 billion-200 billion rubles.

A second source within the government said the form in which VTB and others would receive the capital injection had not yet been agreed.

"VTB's management said earlier the bank would prefer Tier 1 capital injection, so the subordinated loan is not the best option for VTB. But no doubt it's good news," UBS analyst Natalya Pushkina said.

Deteriorating Assets

The state, whose gold and foreign exchange reserves of $396 billion on January 16 were still the world's third largest despite losing a third of their value since August, has said it is ready to help Russia's banks.

Finance Minister Aleksei Kudrin has said the government would allocate $40 billion in 2009 to help the banking sector get through the crisis, as the deteriorating quality of assets puts pressure on banks' profitability and capital adequacy ratios.

VTB reported a third-quarter loss of $363 million. Sberbank, while reporting third-quarter net profit of 23.2 billion rubles, is likely to come under pressure from new writedowns and higher provisions.

The government said the anticrisis committee, chaired by First Deputy Prime Minister Igor Shuvalov, had met to decide the amount of finance needed to increase banking capital. It did not give any more detail.

Russia's Central Bank expects the share of nonperforming loans in commercial banks' loan portfolios to rise to 4.0-4.5 percent in the first quarter of 2009.

Russian banks have been lobbying for Tier 1 capital injections, such as direct equity-stake purchases by the state.

"I cannot imagine how this can happen. Then all our banks will become state-owned," the second government source said.

In the previous round of capital injections, the state pledged to give banks 950 billion rubles in subordinated loans. Subordinated loans qualify as second-tier capital under international commercial banking rules.