Russia to Auction $25 Billion in Budget Funds to Help Banks

Russia to Auction $25 Billion in Budget Funds to Help Banks

By Halia Pavliva

April 14 (Bloomberg) -- The Russian government will allow banks to bid for as much as 600 billion rubles ($25.6 billion) in budget funds to shore up liquidity, said Deputy Finance Minister Dmitry Pankin.

``Theoretically, the volume that may be placed may be about 600 billion rubles,'' Pankin said at a press briefing in Washington D.C. after the semi-annual meeting of the International Monetary Fund and World Bank.

The auctions to allow banks to temporarily hold spare budget funds will probably start this month, he said. The government initially expected to let the banks bid for between $10 billion and $15 billion, Pankin said on April 9. Russian lenders need additional funds as interbank lending rates rise worldwide, fueled by the U.S. subprime mortgage crisis.

``The scale of this crisis is still unknown,'' Finance Minister Alexei Kudrin said at a press briefing in Washington on Saturday. ``Russia feels it already, for reasons including capital outflow and higher interest rates.''

Net capital outflow reached $22.8 billion in the first quarter, according to the central bank's preliminary estimate. The nation had inflows of $20.8 billion in the fourth quarter of 2007.

First Auction

The first auction was planned to take place on April 17, though it may take longer to enroll the banks, Pankin said. The ministry and the central bank will jointly decide on the price limit for the deposits, he said.

Lenders enrolling with the central bank to participate in the auctions for the right to hold the funds must have capital of at least 5 billion rubles ($210 million), a suitable credit rating and be part of the deposit insurance system, Deputy Finance Minister Tatiana Nesterenko said last month. The central bank will probably draw up a list of about 30 banks that qualify for the auctions, she said on March 19.