Banks toxic assets issue

Toxic assets problem in the banks is comprehensively discussed in Russia.  "Russia does not have a major toxic asset problem in the banks. Russian banks were not really involved in buying these derivative securities," Martin Gilman, Professor at the Higher School of Economics, said.

Without a toxic asset problem, a bad bank is unnecessary as loans are backed against tangible assets, such as real estate. Russia may not run into a capital problem, even if the rate of non-performing loans increased to 10 per cent, Gilman said.

"The banks in Russia, as a group, are relatively well capitalized, they are not insolvent," said Gilman. "That being said there are certain banks that are insolvent. They overlent to the wrong borrowers without doing due diligence."

It is mostly smaller, regional banks which may face insolvency, particularly with the minimum capital requirements being raised. These banks are likely to go bankrupt unless they receive more funding or offload assets, which could be done into a bad bank.

"This idea of using a toxic asset scheme in Russia is one way, some are suggesting, of salvaging the banks that made bad credit decisions and whose non-performing assets would wipe them out," he said.

It is unlikely there would be much support for protecting smaller banks as there are already too many lenders in Russia. The government is also reluctant to create a toxic assets vehicle because it could create opportunities for corruption.

M. Gilman for the Moscow News