UPDATE 3-Russia says bad loans slow, analysts cautious

* NPLs at 9-10 pct by yr-end under optimistic scenario

* C.Bank is satisfied with the current level of provisions

* Finance Ministry says bank capitalisation plan may be cut

* Analysts say official data shows only part of the problem

(Adds Finance Ministry official, IFC comment)

By Dmitry Sergeyev and Daria Korsunskaya

NIZHNY NOVGOROD, Russia, Aug 27 (Reuters) - Russian officials on Thursday cut forecasts for banks' bad loans and said state help for the sector could be scaled back, but analysts said statistics revealed only the tip of the iceberg.

Russia's 1,100-plus banks are struggling with losses as provisions for bad loans rise. But recent weeks have brought some grounds for optimism, with signs the economy is starting to recover from its first recession in a decade.

The pace of growth in Russian banks' non-performing loans (NPLs) has halved since the start of 2009 and lenders now have enough reserves to handle the bad debts, central bank board member Mikhail Sukhov told a banking conference.

Officials are now looking into reducing the size of planned state capital injections into the sector, Deputy Finance Minister Tatyana Nesterenko said [ID:nLR716475].

"The Finance Ministry and the central bank are now thinking ... whether such a volume of funds is necessary," she said.

The government has charged banks with kick-starting growth in the real economy and had planned to recapitalise banks through 460 billion roubles ($15 billion) of special OFZ Treasury bonds, with 210 billion roubles due this year.

The central bank had previously forecast 10-12 percent of the total portfolio would be classified as non-performing by the end of 2009 under what it called a "conservative" scenario, but Sukhov said the figure is now likely to be smaller.

"Under an optimistic scenario, the share of bad loans will rise to between 9 percent and 10 percent of the total loan portfolio. And we are optimists," he said, adding bad loans stood at around 5.4 percent as of Aug. 1.

The 10 percent threshold for NPLs is psychologically important, with the central bank forecasting the whole sector's profit would be wiped out if delinquent loans breach that level.

"We are satisfied with the current level of provisions as a whole," Sukhov said. Provisions stand at 11 percent of retail portfolios and 7.9 percent of corporate portfolios.

Rising provisions saw Russia's biggest lender, Sberbank SBER03.MM, post a tiny net profit in the first quarter, while No. 2 bank VTB (VTBR.MM) reported a loss.

The central bank does not expect total provisions to rise significantly from the current 1.6 billion roubles.

The comments come in a week when Russian officials have heralded early signs of an economic recovery [ID:nLO565593] and some non-financial companies have surprised the market with bigger-than-forecast second-quarter profits. [ID:nLQ246042]

ACCURATE DATA?

But some experts see the central bank's optimism on the banking sector as premature.

"We believe that seriously impaired loans of Russian banks could be at least three times higher than is indicated by the official statistics," Barclays Capital said in a report.

Greg Alton, a senior investment officer for Central and Eastern Europe at the International Finance Corp (IFC) [IFC.UL], estimates the real number of NPLs is already near 10 percent.

"Some of the banks are just hiding their difficulties," Alton said. Additionally, the discrepancy in the estimates is due to differences between Russian accounting standards and international accounting standards, he told Reuters.

The IFC is hoping to start buying bad assets from Russian banks by the year's end, he added. [ID:nLR716475]

For its part, the Russian central bank is also looking at ways to make commercial lenders more transparent on bad loans.

Under current legislation, any bank that posts losses for three consecutive quarters is banned from attracting new retail deposits until it returns to profit. But Sukhov said the rules could be changed in September, potentially leading to greater honesty from banks on NPLs.

"The moratorium will let banks feel freer in forming honest financial documentation," he said.

The global economic crisis has effectively closed the wholesale credit markets for Russian borrowers, making retail and corporate deposits a vital source of funding for banks.

Banks do not want to be banned from attracting such deposits and thus some of them are seeking different ways to minimise bad loan provisions on their balance sheets.

One current practice is for a bank to sell the bad loans to special mutual funds and then to put shares in that fund on to the balance instead of delinquent loans, Sukhov said.

"We saw around 100 billion roubles worth of assets transferred to closed mutual funds each summer month," he said, adding that the regulator was closely watching for any signs of banks artificially improving their balance sheets. (Additional reporting by Lidia Kelly in Moscow, writing by Toni Vorobyova; editing by Jon Boyle)