Russian Corporate Loan Slowdown to Test Banks, Nabiullina Says

Russia’s economy is hobbled by a slowdown in corporate lending relative to consumer credit, which presents a “huge challenge” to the country’s financial industry, according to Elvira Nabiullina, President Vladimir Putin’s nominee to take over the central bank in June.

“This requires a full range of measures both from the banking community and from companies in the real sector,” Nabiullina said at a banking conference in Moscow today, her first speech since Putin announced the nomination March 12.

The weaker lending to companies is partly a result of the slowing economy, which has suffered as deteriorating global conditions weigh on exports, and the cost of credit exceeding returns on investment projects, Nabiullina said.

Nabiullina, Putin’s former economy minister and current aide, is poised to take over at the helm of monetary policy as gross domestic product is expanding at the slowest pace since a recession in 2009. The economic deceleration, which has continued into this year, sparked an argument between policy makers over interest-rate cuts to spur growth with inflation above Bank Rossii’s target range of 5 percent to 6 percent.

The central bank yesterday left its main rates unchanged for a seventh month, keeping the refinancing rate at 8.25 percent while cutting some borrowing costs on less frequently used credit instruments and signaling greater concern about the slowing economy.

The ruble depreciated 0.4 percent to 31.4400 against the dollar at 1:14 p.m. in Moscow. The Micex Index of 50 stocks lost 0.2 percent to 1,426.81.

Nabiullina said she saw room to improve the central bank’s refinancing operations. Even so, Bank Rossii “can’t compensate for all of the market sources of financing of the banking system,” she said.

“In Russia, the role of external funding for the banking system has fallen,” Nabiullina said. “The banking system needs to seek domestic resources. The importance has grown of the central bank’s refinancing operations as a source of liquidity.”

To contact the reporters on this story: Scott Rose in Moscow at rrose10@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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