Russia central bank to lend without collateral by year-end

MOSCOW (Reuters) - Russia's central bank will be able to start lending money to credit-rated banks without collateral by the end of the year in another liquidity-boosting measure, its first deputy head was quoted as saying on Wednesday.

The move is part of Moscow's money market rescue package worth around $180 billion, with measures announced so far ranging from tax cuts to possible share purchases.

"All the measures announced by the government are aimed at protecting our banking sector, and the economy as a whole, from the negative consequences of the global crisis and the possible deterioration of the situation on the world's financial markets," Interfax quoted the bank's Alexei Ulyukayev as saying in an interview.

As part of that, the central bank will offer collateral-free credit for up to six months, possibly through auctions.

Which commercial institutions will qualify is yet to be determined, but Ulyukayev said it would be at least the 28 who currently meet the credit quality requirements for the Finance Ministry's auctions of budget funds, and up to 116 -- the number of Russian banks rated by international credit agencies.

"In our view, allowing the CBR to provide uncollateralized loans carries a number of important benefits that outweigh potential risks," Citi analyst Elina Ribakova said in a note.

"(It) enables the CBR to fully function as a lender of last resort and is an emergency measure that we believe is needed in every central bank's toolkit."

The central bank's lending will in part replace and partly add to what is currently offered by the Finance Ministry in the form of temporarily free budget funds placed on deposits at commercial banks via auction.

"Unlike other measures, this measure is permanent, its term of operation will not be limited," Ulyukayev said.

The possibility of collateral-free lending by the central bank was first raised by Prime Minister Vladimir Putin on Monday, but he did not give any details.

Another message announced this week by Putin features state-owned Vneshekonombank (VEB) which will receive up to $50 billion from the central bank to lend to companies which need to pay back foreign debt taken out before September 25.

Ulyukayev said VEB will provide the money until the end of next year and estimated Russian companies need to pay back $40 billion of foreign debt this year, and $80 billion in 2009.

"So we are not talking about 100 percent refinancing of this debt through VEB," he said.

There will be a minimal rate at which VEB can lend to the companies, but not a maximum one, and it will be able to decide on criteria by which it will select borrowers.

For its part, the central bank will charge VEB a modest rate, perhaps around LIBOR plus one percent.

Ulyukayev also gave some more details on plans to enable the central bank to compensate commercial institutions for losses sustained as a result of lending on the inter-bank market.