Medvedev, top banker rap Putin cabinet policies

MOSCOW (Reuters) - Russian President Dmitry Medvedev told the cabinet of his political mentor Vladimir Putin to rethink policies and put state caps on banks’ lending rates, but Putin’s deputy rebuffed the idea as an extreme move.

The debate came after a top banker attacked the government’s slow response to soaring bad loans and came as yet another sign that Russia’s first recession in a decade is testing the resilience of the dual Medvedev-Putin power structure.

The lack of affordable credit has hit Russia, with data on Wednesday showing car sales almost halved in the first quarter [ID:nL8401422], air passenger numbers shrank [ID:nL8480759] and consumer confidence hit a 10-year low [ID:nL8368381].

The government has charged Russian banks with funding the real economy at a time when the global credit crunch has shut off avenues of foreign credit while slowing global demand and falling oil prices put further strain on corporate finances.

“One approach, which is shared by many our colleagues in the government, is that there is no need to regulate, everything will go back into place,” Medvedev said at a meeting with the United Russia party, which is led by Prime Minister Putin.

“There is another approach, that we need to manage this process through state regulation. From my point of view, this approach is better during the crisis,” Medvedev said, adding that lending rates regulations could be put in place for 6-12 months.

Putin, who was president between 2000-2008 and is still seen as Russia’s most powerful politician, said this week the banking sector has managed to avert a deep crisis.

His First Deputy Igor Shuvalov told reporters on Wednesday state caps of lending rates was “an extreme measure” and it was not being discussed at the moment.

The comments followed unusually sharp criticism from the head of state-controlled Sberbank SBER03.MM, German Gref, who told a conference on Wednesday the government was not reacting quickly enough to the problem of soaring bad loans.

“Slow action (by the government) allows the banks to hide bad debts and leads to the accumulation of bad assets,” said German Gref.

“The issue of bad debts is the key and most painful for the government during the second stage of the crisis,” he added.


Apart from Putin, many government officials have said this month Russia would avoid a second wave of banking sector crisis and that banks should increase lending as the central bank could cut rates as soon as inflation was slowing.

First Deputy Chairman of the Central Bank, Alexei Ulyukayev, told the same conference with Gref that rates could be cut “within a month,” adding the move would be a small one.

The latest data showed on Wednesday, however, consumer prices were up 5.6 percent year to date, up from 5.3 percent for the same period of 2008.

Gref said it was neither possible nor advisable for banks to increase their lending due to rising bad loans risks.

Industries complain growth cannot be revived so long as the central bank keeps the refinancing rate at 13 percent, with commercial banks lending funds only at more than 18 percent.

Russian banks have so far avoided the fate of some Western peers, devastated by toxic assets.

However, they are fast accumulating stakes in companies and entire enterprises that have been put as collateral -- often at inflated prices -- against loans.

The central bank has said Russian banks could see all their profits erased in 2009 should bad loans rise to 10 percent, triggering provisions of $45 billion. Gref said almost all of Sberbank first quarter profits would go to provisions.

Officials have so far rebuffed the idea of emulating the move by the United States in setting up a bad bank, citing potential corruption risks, and have preferred to recapitalize banks.

“If we are persuaded that this (bad bank) is the right thing to do, then we will have to listen,” Shuvalov said.

Additional reporting by Dasha Korsunskaya and Yelena Fabrichnaya; Writing by Dmitry Zhdannikov; Editing by Andy Bruce