Russia to inject 40 bln dlrs in banks: minister

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(Agencies)
Updated: 2009-02-05 09:13

LONDON -- Russian Finance Minister Alexei Kudrin said Wednesday that the government would expand a financial support package for Russian banks and inject 40 billion dollars (31 billion euros) in new capital.

The building that houses the offices of Renaissance Capital, one of Russia's biggest investment banks, is reflected in a traffic safety mirror in Moscow in 2008. Russian Finance Minister Alexei Kudrin said Wednesday that the government would expand a financial support package for Russian banks and inject 40 billion dollars (31 billion euros) in new capital.

In a speech in London, Kudrin also said state support for business would be of a temporary nature and he identified inflation as a major challenge for the country following recent devaluations of the ruble.

"We will be expanding (bank) support by a further 40 billion dollars ... allowing us to make further ... credit available to them," Kudrin said.

In Moscow, powerful Deputy Prime Minister Igor Shuvalov told an investment forum that the government was ready to increase the capital of banks by 15 percent so long as its injections were matched by private shareholders.

News agencies cited participants in the forum as the meeting was closed to press.

"We are working on it and you are going to hear about it," Shuvalov told reporters later, according to Interfax news agency.

He said the measures would apply to only 50 banks out of over 1,000 in the country and both state banks and private banks would be eligible for aid.

He also emphasized that Russia had no plans to create a so-called "bad bank" to take over the soured loans loans extended by other banks.

The comments came after Russian Prime Minister Vladimir Putin met the heads of the largest Russian banks on Tuesday to discuss the recapitalisation package.

"We need to think about possible ways to increase the equity capital of banks, and not only state banks, but also private ones," Interfax quoted Putin as saying.

The Kommersant newspaper said the operation could lead to the state taking stakes of over 30 percent in banks although this has not been confirmed officially.

Participants in the meeting with Putin included German Gref, the former economy minister who is now the head of state-owned Sberbank and Mikhail Fridman, one of Russia's richest men representing shareholders of Alfa Bank.

Several Russian banks have already received an initial tranche of state aid, including the Soyuz Bank of billionaire Oleg Deripaska which has received assistance reportedly worth three billion dollars.

Kudrin said that "state support for business is of a temporary nature."

"After time we will withdraw," he said.

He also said that Russia could take advantage of the low level of state debt when market conditions were more favorable.

"We will use (the cushion of low state debts) later when conditions are a little more favorable in the markets," Kudrin said, noting that such debt is currently equal to less than 9.0 percent of gross domestic product -- by most international standards, very low.

He also said the inflation rate, which has been pushed up by the weakening of the ruble, is Russia's "most difficult challenge."