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Friday, February 16, 2007

Bankruptcy on Russia's Horizon

The BBC reports that Russia is awash in bad debt, facing a massive three-fold increase in the past year as banks, flush with oil revenues, too aggressively seek lending outlets. This is more or less what happened in the US in the 1920s, and the stock market crash was the result.

The amount of bad consumer debt in Russia tripled during 2006 from the year before, according to figures from the Central Bank in Moscow. Some analysts suggest the situation is under control, but media reports imply Russia could be heading for a credit crisis. Lenders have announced that stricter checks on potential borrowers will be introduced from 1 March. Russians racked up more than $1bn (£511m) in bad debts in 2006. It is less than 10 years since the banking system in Russia all but collapsed - so warnings of a crisis ring alarm bells. There are plenty of loans on offer in Russia - advertising in the country emphasises the cars and holidays which consumers can pay for if they take out credit. But advertising fails to remind them about whether they can make the repayments. Not everyone agrees there's a looming disaster. Rusrating - an agency which gives credit ratings to Russian banks - says the bad loans "are not safe, but not a danger".

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