December 4, 2013 / 9:35 AM / 4 years ago

Ukraine bad loans systemic but interbank market working - Russia's VEB

MOSCOW, Dec 4 (Reuters) - Ukraine has a “systemic” problem with bad loans but its interbank money market is functioning normally despite the political and financial upheaval of the past week, Russia’s state development bank VEB said on Wednesday.

In a response to questions from Reuters, a spokesman for VEB said its own loan exposure in Ukraine was nearly $4 billion, mostly through subsidiary Prominvestbank. President Vladimir Putin had said that VEB and three other Russian banks - Sberbank , VTB and Gazprombank - had lent a total of $28 billion to Ukraine.

Russian banks, with a share of 12 percent of banking assets in Ukraine, are the biggest foreign players in the ex-Soviet economy, scene at the weekend of the biggest political protests since the 2004-5 Orange Revolution in a row over its rejection of an EU trade accord.

Ratings agency Moody’s says the exposure poses risks to the banks asset quality and capital adequacy.

VEB, or Vnesheconombank, said Prominvestbank had a corporate loan book of $3.5 billion and interbank lending of around $250 million.

“It is indeed the case that one of the systemic problems that Prominvestbank encounters is the low quality of debt servicing,” the VEB spokeswoman said in emailed comments, saying that the bank held more than $1 billion in problem loans.

Prominvestbank was working flat out to recover these loans, and had won $287 million in repayments through the courts in the form of money and property.

The spokeswoman added that no risks had materialised on the interbank markets following last weekend’s protests, in which 350,000 people rallied in Kiev to demand Yanukovich’s resignation over his decision to scrap a European Union trade accord.

In addition to Prominvestbank, VEB’s leasing arm has a business in Ukraine.

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