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Financials

Sberbank CEO: Russia rates too low, banks not ready

* CEO says rates do not reflect risks

* Banks’ profits to suffer on weak loan growth

* Latest cbank rate cut comes into effect on Tuesday

MOSCOW, June 1 (Reuters) - Russian interest rates are too low and could hurt the still fragile banking sector, the head of the country's biggest lender Sberbank SBER03.MM said on Tuesday, as the latest central bank rate cut came into effect.

The central bank on Monday unveiled its 14th monetary easing step since April 2009, taking the refinancing rate to a fresh record low of 7.75 percent, and repeated its call for affordable lending from banks. [ID:nLDE64U1O7]

One-month MOSPRIME interbank rates SPRIME1MD= have fallen below 4 percent, to levels last seen in 2006. "We think that now rates in the economy are unjustifiably low and do not reflect the real value of risk," Sberbank Chief Executive German Gref told a conference in Moscow.

Finance Minister Alexei Kudrin disagreed with Gref, telling the conference audience the rates were justified because of low inflation, which is expected to stay below 7 percent this year after having fallen to its lowest level in Russia’s post-Soviet history.

Officials have repeatedly called on banks -- especially state-controlled ones such as Sberbank -- to offer cheaper loans to the real sector to help the economy recover from its first recession in a decade.

“The banking system is not ready for such rates and many banks could have low or negative margins and this will influence the speed of recovery in the banking sector, which is not in an easy situation,” Gref said.

UNHEALTHY OPTIMISM

Gref said economic risks were currently higher than those in 2006 or 2007 while interest rates were already lower.

“We could get, on the basis of not always healthy optimism, projects which will not be realised and will end up on banks’ balance sheets,” Gref said.

The central bank has already cut its forecast of loan growth this year [ID:nLDE64K1S4] and the stagnation in lending growth will affect banks’ profits, Moody’s rating agency said.

Should the loans rise 5 percent, in line with the central bank’s latest forecast, instead of the previously expected 15 percent, the more subdued lending will cost the banking system up to $3 billion in 2010 in lost profit, Moody’s said.

Consumer prices were up 5.7 percent in the 12 months to May 24, compared to year-on-year inflation of 9.4 percent in May 2006 and 7.8 percent in May 2007.

Banks’ average loan rate to non-financial organisations fell to a two-year low of 11.4 percent in April, according to central bank data. The figures exclude Sberbank, though, whose portfolio accounts for 30 percent of loans in Russia.

Sberbank expects its loan portfolio will increase by about 10 percent this year. (Reporting by Oksana Kobzeva and Dmitry Sergeyev; writing by Toni Vorobyova; editing by Karen Foster)

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