UPDATE 2-Russia Medvedev calls for stronger state guarantees

* Medvedev says state guarantees were failure

* Calls for joint liability guarantees

* Says banking system has stabilised

(Adds FinMin official, details, background)

By Gleb Bryanski

MOSCOW, May 13 (Reuters) - Russia's plan to help key companies through a system of state guarantees has been a failure, President Dmitry Medvedev said on Wednesday, calling for stronger state guarantees on loans.

The government decided in February to back loans to about 300 firms entitled to preferential government support but banks, already saddled with bad loans, refused to lend saying that even with guarantees their risks were too high.

"Three hundred billion roubles ($9.3 billion) was reserved for this and not a rouble of that has been given out. So the old idea of state guarantees has fallen through," Medvedev told a group of key ministers and top bankers in the Kremlin.

Under the old scheme the government guaranteed the return of up to 70 percent of the debt for enterprises in the defence sector and up to 50 percent for other enterprises in the list.

The mechanism is based on a subsidiary liability principle, which implies that the lender should first go through a lengthy and painful procedure of debt recovery before it can ask a debt guarantor for reimbursement.

Bankers wanted a guarantee mechanism based on the joint liability principle, which means that banks can go directly to the state if an enterprise defaults and recover the debt faster.

"We need to finish preparations of legal norms allowing for issuance of state guarantees based on a joint liability principle," Medvedev said.

A new law, prepared by the Finance Ministry and currently being reviewed by the government, simplifies debt recovery but does not change the liability principle. Joint liability state guarantees have no precedent in Russia.

GROWING FRUSTRATION

Bank lending has dried up in Russia due to massive capital outflows, currency devaluation and a slump in economic activity and demand. Bankers blamed the central bank's tight monetary policy for prohibitive lending rates.

The central bank has cut interest rates by a total of one percentage point in recent weeks [ID:nLD75140] and signalled more interest rates cuts.

"Everyone is waiting for money but state guarantees are not working," Medvedev said. "I do not want to blame anyone. Most likely the banks themselves should have signalled that such a mechanism would not be convincing for them."

Medvedev's statement follows a series of attacks on policy failures. Earlier this month he criticised the government's efforts to prop up the stock market during the crisis using state funds from the rainy day oil fund despite stellar returns on this investment during the recent stock market rally.

Investors and analysts are watching for any signs of tension between Medvedev and Prime Minister Vladimir Putin as Russia's leaders grapple with soaring unemployment and ballooning budget deficits. Medvedev has never singled out Putin personally.

Medvedev sounded upbeat on banks, saying Russia had managed to stabilise the banking sector although lending and bad loans remained a problem. A senior Finance Ministry official said more state help for banks was on the way.

Alexei Savatyugin, head of financial policy at the ministry, said the government will issue up to 200 billion roubles in marketable sovereign securities with maturities of up to 5 years to boost the capital of commercial banks. (Additional reporting by Yelena Fabrichnaya; Editing by Ruth Pitchford)