May 21, 2020 / 11:02 AM / 6 days ago

Moody's sees Russian consumer, SME loans hit badly by coronavirus

* Demand for retail loans nearly halves in April - data

* Retail loans, SME lending one of the most profitable for banks

* Fall will be deep but banks will recover in two years - Moody’s

By Tatiana Voronova and Gabrielle Tétrault-Farber

MOSCOW, May 21 (Reuters) - Russian consumer loans along with lending to small and medium-size businesses (SMEs) will be hardest hit as a result of the economic fallout from coronavirus, a official with ratings agency Moody’s said on Thursday, but domestic banks will fully recover in two years.

Russia’s top banks, Sberbank and VTB, have already posted a fall in quarterly profit amid increased provisions for bad loans and as the country goes through an eighth week of a nationwide lockdown due to coronavirus.

Yaroslav Sovgyra, an associate managing director for the Moscow-based banking Moody’s team, told a conference call the decrease in household incomes due to the prolonged lockdown will take a toll on consumer loans and SME portfolio, traditionally one of the most profitable businesses for banks.

“They (banks) are prepared to absorb credit losses and we expect that it will take Russian banks less than two years to fully absorb the impact of credit losses emerging from this crisis,” he said.

According to Frank RG consultancy, Russian banks issued a 45% reduction in new retail loans, which include consumer credits, in April, year on year - the first full month of a lockdown for the nation of 147 million.

The fall is comparable to the crisis of 2014-2015 when Russia was put under Western sanctions due to its role in the military conflict in eastern Ukraine and annexation of Crimea, the consultancy said.

Executives at all major players in retail lending, from Sberbank and VTB to Raiffeisenbank, Otkritie and TCS , have recently noted a rapid fall in demand for new loans in April - a sign of weak profits in the second quarter.

“Now we can only guess when demand for (retail) loans may start picking up,” German Gref, chief executive at top bank Sberbank, said this week.

The central bank is due to publish statistics for April later this month. (Additional reporting by Elena Fabrichnaya; Writing by Katya Golubkova; editing by David Evans)

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