Russian banks' assets shrink, corporate lending up

MOSCOW, June 2 (Reuters) - Russian banks' assets shrank in April for the third month in a row, but lending to corporates increased slightly after two months of contraction, central bank data showed on Tuesday.

The country's 1,200 banks had been badly hit by the stock market collapse and liquidity crisis in the second half of 2008.

A deterioration in asset quality turned the banks against lending, with corporate loans falling in February and March for the first time in at least three years.

The central bank has reacted by cutting interest rates in a bid to encourage banks to offer affordable loans to help Russia through its first recession in a decade.

Corporate loans increased 0.5 percent month-on-month in April after declining 1.5 percent in March and 0.4 percent in February. Retail loans fell 1.6 percent month-on-month in April but the pace of contraction eased from March's 2.5 percent decrease.

Assets in the banking sector fell 1.7 percent month-on-month in April after contracting 2.3 percent in March and 1.9 percent in February.

The total capital of Russian banks rose 7.5 percent, the biggest upward move since the end of November 2008.

Bad loans rose by 82.6 billion roubles to 725.2 billion roubles ($23.59 billion) or 3.6 percent of the total credit portfolio in April. The increase was about 50 percent bigger than in March, when bad loans grew 54 billion roubles. (Reporting by Dmitry Sergeyev; Editing by David Holmes)