Expert (Moscow): "SIGNAL FOR RESURFACING"
Cuts in the refinance rate and new initiatives aimed at supporting banks will not rapidly revive the system of lending to the non-financial sectors. But they will have a big psychological effect, as the authorities use them to signal their support of business now that the decline in production has stopped.
The prime minister has joined the campaign to make bank loans more affordable for the real economy. Last Wednesday, Vladimir Putin said at a meeting on economic issues that the slowing of inflation created conditions for cutting the Central Bank's refinance rate.
He also told the banks that had received the government's financial assistance that they must not issue loans at an interest rate exceeding the Central Bank's refinance rate by more than three percentage points. The figure must include all commission fees, Mr Putin added.
Bank loans issued on these conditions to the real sector and individuals should at least equal the sum of state assistance to these lending institutions.
The premier also proposed expanding the practice of the government's subordinated loans to banks. Banks that have received such loans will be able to apply for new loans under the new ratio of state versus private funding: 3-to-1, rather than 1-to-1 in accordance with the earlier established procedure.
Subordinated loans have so far been issued only to two state banks, VTB (200 billion roubles) and Rosselkhozbank (250 billion roubles), as well as to private banks Alfa Bank, the Bank of Khanty-Mansiisk, Nomos Bank and Gazprombank, which together received 32 billion roubles. Sberbank took out a subordinated loan worth 500 billion roubles from the Central Bank.
All of these banks received from the Government as much as their main shareholders contributed to their authorised capitals. The state loans were issued at 8% annual interest for up to 10 years.
To encourage banks to grant more loans, Mr Putin instructed the Ministry of Finance and the Central Bank to change the mechanism of state guarantees, so that banks would receive the state guaranteed compensation immediately upon the borrowers default, and only then sell their pledges.
Currently, state guarantees account for 50% of the loan, but banks can receive the money only after they receive the second, unsecured part of the loan, which implies selling the pledged property.
The Central Bank acted on the premier's instructions immediately. The day after Mr Putin's address, the board of the Central Bank directors decided to lower the refinance rate to 12.5% from 13%, and also to cut interest rates on the Central Bank's operations starting April 24, 2009.
It was the first cut of the CB refinance rate in 14 months. Despite the acute financial crisis, the Central Bank raised the rate six times between February and December 2008, from 10% to 13%. Alexei Ulyukayev, first deputy chairman of the bank, said the banks in whose liabilities the Central Bank had a considerable stake would be able to benefit from the cut immediately, adding that there were few such banks.
"The Central Bank holds only 18% of the banks' liabilities. Therefore, cuts in the refinance rate are unlikely to encourage banks to lower loan interest," said Vladimir Mekhryakov, deputy general director of URSA Bank.
Bankers were shocked that the Central Bank, while lowering the refinance rate, raised the norm of obligatory reserves. The bank slashed it from 6%-8.5% to 0.5% last autumn and planned to raise it to 1.5% in February and 2.5% in March. Later it put off the deadlines to May and June, respectively.
However, the bank has recently decided to raise the norm by 0.5% monthly beginning in May.
Likewise, bankers do not expect the Government to increase the number of banks receiving subordinated loans, especially since the limit has now been set for the overall size of the loan for end borrowers.
Given the current risks, an interest rate of 15.5% is absolutely unrealistic, the bankers say, adding that they must be able to loan at upwards of 20%. "We discuss loan extensions with our clients every day, but they are not even sure they will not go bankrupt by the end of the year," they said.
On the other hand, the Central Bank and the prime minister's initiatives are not expected to produce an effect overnight. Rather, they are a clear signal to bankers and industrialists that the government's monetary and credit policy has been softened.
The authorities seem to be moving past the acute phase of the crisis, when they were trying to stabilise the rouble and halt capital flight, and on to the encouragement of an economic revival.
