Russia Facing ‘Huge’ Corporate-Credit Test, Nabiullina Says

Russia’s economy is hobbled by a corporate-lending slowdown that represents a “huge challenge” to the country’s financial industry, said Elvira Nabiullina, who’s slated to become central bank governor in June.

Spurring corporate lending “requires a full range of measures both from the banking community and from companies in the real sector,” such as finding more domestic funding sources, Nabiullina told a banking conference today in Moscow, her first speech since President Vladimir Putin announced her 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, 49, Putin’s former economy minister and current aide, is poised to take over the central bank as Russia’s $2 trillion economy expands at the weakest pace since a 2009 recession. The slowdown has sparked an argument between the government and monetary-policy makers over whether to cut rates with inflation exceeding Bank Rossii’s 6 percent threshold.

Corporate Investment

The ruble depreciated 0.7 percent to 31.5335 against the dollar at 5:30 p.m. in Moscow. The Micex Index of 50 stocks lost 0.2 percent to 1,426.81.

Companies squeezed by slumping exports and high borrowing costs are cutting back on investment, with gross fixed-capital formation growing 1.4 percent from a year earlier in the fourth quarter compared with 4.7 percent in the previous three months.

One reason is a lack of credit, according to Nabiullina, who said the proportion of foreign funding for the banking industry has declined.

“The banking system needs to seek domestic resources --the importance has grown of the central bank’s refinancing operations as a source of liquidity,” Nabiullina said. Even so, Bank Rossii “can’t compensate for all of the market sources of financing of the banking system.”

While the central bank left its main refinancing rate unchanged at 8.25 percent for a seventh month yesterday, it took the biggest step toward easing monetary policy since raising all rates in September by cutting some borrowing costs on less frequently used credit instruments.

Economic ‘Stagnation’

Data released yesterday showed the economy expanded 2.1 percent from a year earlier in the fourth quarter, the slowest advance in more than three years. Russian growth of less than 3 percent is the equivalent of “stagnation,” former Finance Minister Alexei Kudrin told a conference in Moscow.

Putin, who brought Nabiullina with him to the Kremlin when he switched from his role as prime minister last May, has said borrowing costs “substantially” higher than inflation are a source of concern. Top government officials including Deputy Economy Minister Andrei Klepach and First Deputy Prime Minister Igor Shuvalov have also called for lower interest rates.

Nabiullina, who as minister from September 2007 to May 2012 helped conclude Russia’s talks to join the World Trade Organization last year after an almost two-decade wait, is attending a committee hearing on her confirmation today.

The Russian parliament will vote on the nomination April 9, with lawmakers from the ruling United Russia party signaling they’ll back her appointment. She needs the support of a majority in the 450-member State Duma to be confirmed.

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