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Putin Slashes State Support for Banks

Vladimir Putin meeting with United Russia officials at his Novo-Ogaryovo residence outside Moscow on Friday. Government.ru

Prime Minister Vladimir Putin said Friday that the government would slash support for banks because the worst was over for the sector, a notion supported by state bank VTB, which is forecasting that its loss will shrink in the second half.

The government will more than halve the funds aimed to support banks in 2010 to 100 billion rubles ($3.4 billion), Putin said at a meeting with United Russia officials.

“We had allocated 250 billion rubles to support the banking sector in 2010. The Central Bank cut its refinance rate effective from today. It is another sign that the situation in the financial sphere is normalizing,” he said.

The 150 billion rubles cut from the allocation for banks will be channeled into an anti-crisis fund, which Putin said would focus on the real economy.

The announcement came the same day as a major state loan guarantee of about 26 billion rubles to four companies.

Kazanorgsintez, Russia’s largest maker of polyethylene, received a guarantee for 10 billion rubles, while TAIF, a Kazan-based holding company that controls Kazanorgsintez, got a guarantee for 7.5 billion rubles, the government said in an e-mailed statement.

Uralvagonzavod, a maker of railway cars and battle tanks, received a guarantee for 3.3 billion rubles in addition to previous guarantees, while the United Grain Company received a 5 billion ruble guarantee, the statement said.

The guarantees are for loans from Sberbank and Rosselkhozbank.

The Central Bank on Thursday announced its eighth interest rate cut since April, reducing the refinancing rate to a historic low of 9.5 percent. The cut came a day after data showed that October would likely be the third month of zero inflation.

The country’s lenders are struggling with losses as bad loans erase their profits and put pressure on capital.

The government expects the economy to contract 6.8 percent in the second half and 8.5 percent in 2009 on average, after growth of 5.6 percent in 2008 and 8.1 percent the year before.

VTB, the country’s second-biggest bank, said Friday that it expected its net loss in the second half of 2009 to be much lower than in the first half, when the bank lost 38 billion rubles

State-controlled Sberbank, the country’s largest lender, said it expected only a tiny profit this year and VTB has said a net loss is inevitable. Both forecast much better results in 2010.

“The loss will be decreasing. And we expect it to be much lower than in the first half of the year,” VTB chief executive Andrei Kostin said.

The government injected 180 billion rubles into VTB’s capital in September, as the only buyer of the bank’s additional share issue.

The government had planned to issue a total of 250 billion rubles in 2010 in special bonds for bank capital injections to help them plug the holes in their books.

(Reuters, Bloomberg)

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