The quality of banking credit portfolio deteriorated in October to such extent that the rates for establishing reserve for potential losses under the corporate loans grew by over three fold and a half vs the average rates of January through September.
Photo: Gennadiy Gulyaev
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Banks Amass Reserves for Risky Loans to Corporations
The quality of banking credit portfolio deteriorated in October to such extent that the rates for establishing the reserve for potential losses under the corporate loans grew by over three fold and a half. Solvency of Russia’s companies is ailing rapidly, and if the trend survives, the banks may violate the CBR requirements for capital adequacy. The punishment for this violation is very severe, up to the license recall.
In October, Russia’s banks were amassing the reserves for potential losses under the corporate loans at the rate of 7.3 percent. Given the official statistics that the CBR released via its web for 970 banks, the aggregate amount of reserves reached 331.5 billion ruble as of November 1.
The analysts say that skyrocketing growth in loan reserves reflects deterioration of credit quality of corporate borrowers. Under the CBR regulations, the banks split their credit portfolios into five categories. They form no reserve for the loans of first category but have the reserve of 100 percent for the fifth category (bad debts).
So, the experts can assess quality of a bank’s credit portfolio by analyzing the reserve. “The accelerated rates of reserve growth for corporate loans are explained by the ailing quality of corporate loan portfolios of the banks,” said Troika Dialog analyst Olga Veselova. “The banks transfer loans to other categories, increasing the reserve for them.”
In this respect, the monthly rates of reserve growth appear illustrative. The speed averaged roughly 2 percent a month for the corporate loans in January through September but soared over three fold and a half in October.
www.kommersant.com
All the Article in Russian as of Nov. 28, 2008
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