Banks may need an additional 500 billion rubles ($16 billion) in capital this year to weather an increase in bad loans, a Central Bank official said Wednesday.

The banking sector faces a rough ride this year as bad loans add up, and those loans now make up 4 percent of the overall total if Sberbank's credit portfolio is excluded, Alexei Simanovsky, head of the Central Bank's banking supervision department, said at the annual meeting of the Association of Russian Regional Banks.

Standard & Poor's announced this week that problem loans could reach 35 percent to 50 percent this year, and one banking analyst said Wednesday that the figure could go higher.

The government has already pledged more than $200 billion in loans, guarantees and lowered reserve requirements since the crisis hit last fall.

Small niche banks are expected to be among the hardest hit in the coming months as more fall victim to bad loans and saw minimum capital requirements raised to 90 million rubles in January.

Regional bankers, however, said at the conference that their institutions must survive to support small business — a key sector in the government's anti-crisis plan.

Anatoly Aksakov, president of the Association of Russian Regional Banks, called for Prime Minister Vladimir Putin to lower banks' capital requirements in order to receive VEB funds to preserve the heterogeneity of the banking sector. Banks should be required to hold 1 billion rubles ($31.7 million), not 3.5 billion rubles, he said.

"In Russia, there needs to be large, medium and small banks to support small and medium business in the regions," Aksakov said.

While most banks look prepared to encounter some problems with bad loans, the question remains what percentage of their credit portfolios actually are in danger of defaulting, Rusrating CEO Richard Hainsworth said on the sidelines of the conference.

Standard & Poor's said Tuesday that problem loans could reach 35 percent to 50 percent of the overall total in Russia, Ukraine and Kazakhstan that and 15 percent to 20 percent of Russia's loans were already under stress.

Although the rating agency's figures are staggering at first glance, one could actually say that 100 percent of loans are under some sort of stress, Hainsworth said, calling S&P's numbers an "underestimate."

At the same time, he said, the figures do not reflect what the banks' actual losses will be. "Are there loans that have started to default? Yes. But do those loans absolutely need to be written off? No," he said.

Borrowers delay payments or pay in other ways. "They fight back, the bank works with them. To say the Russian banking system is on its knees is not true," Hainsworth said.

Banks will be able to start using 30-year subordinated loans as part of their capital requirements, the Central Bank said Tuesday, and Aksakov said he did not see a large number of banks failing this year. The government has said Russia has far too many banks.

Aksakov told The Moscow Times that 10 to 30 of the country's 1,000 banks could lose their licenses by the end of the year because of either the "new capital requirement measures or because of difficulties tied to the crisis."

"I don't see a mass shrinking of the banking sector," he said.

Alexander Trubanov, head of the Deposits Insurance Agency, estimated that a similar number would fail. But their predictions stand in sharp contrast with bankers such as Pyotr Aven, president of Alfa Bank, the country's largest private bank, who told reporters Wednesday that 100 small banks could fail because of a sharp increase in overdue loans.

The varying forecasts on nonperforming loans point to an element of political game, Hainsworth said. "Some of the Russian banks are screaming and yelling and saying how bad things are. But in reality, what it is is a political reaction, because their borrowers, which are government institutions, are trying not to pay or delay their payments," he said.

Crucial to banks' survival is a bank for toxic loans, Aksakov said, a proposal that seems to have gained more traction in recent months.

"The creation of a fund for problem assets will free up banks' balances, boost their liquidity and then they could lend to small and medium businesses," he said.

Thanks to the government's measures, regional banks now have funds to lend small enterprises. Yet in the end, their capacity to do so remains limited, UralTransBank president Valery Zavodov said. Eight months into the crisis, Russia has created a system to support small businesses, but smaller banks just don't have the right technology to go through the many proposals, he said. "At the moment, we just aren't able to take in this money," he said.