Propaganda Alert! Russia starts bailing out banks as economy faces 'full-blown crisis'

© Bloomberg

The Central Bank of Russia has said it will provide £343m of support to one of the country's more troubled banks, as analysts warn of a wave of defaults in the sector.

Russia is facing a "full-blown economic crisis", a former finance minister has warned, as the country is forced to take emergency financial measures.

The economy has been battered by a wave of sanctions as a result of tensions over Ukraine, geopolitical uncertainty, and falling oil prices.

Alexei Kudrin, a former finance minister and once considered an ally of President Vladimir Putin, said: "Today I can say that we have entered or are currently entering a full-blown economic crisis. Next year we will feel it in full force."

Analysts have warned that the Russian economy will not improve in the long-term unless either the oil price or relations over Ukraine improve.

Speaking at a press conference in Moscow, Mr Kudrin went on to say: "As for what the President and government must do now, the most important factor is the normalisation of Russia's relations with its business partners, above all in Europe, the US and other countries".

The comments came as the Russian economic crisis took a fresh turn, with the central bank stepping in to bail out a mid-sized lender.

The Central Bank of Russia (CBR) said that a plan to loan Trust bank an amount of up to 30bn roubles (£343m) had been approved , while analysts warned that Russia's banking sector had become particularly vulnerable.

Anna Stupnytska, an economist at Fidelity Solutions, said that "the risk of a sovereign default is low, it's the corporate sector where the main vulnerabilities lie, and banking in particular".

"Due to sanctions, companies cannot refinance their debt as access to international markets has been essentially cut off", she added.

Trust bank has run a series of advertisements featuring actor Bruce Willis in Russia, along with the quote: "When I need money, I just take it".

A government agency which provides deposit insurance will "hold a complex assessment of the bank's financial standing in order to determine further financial resolution measures", according to a CBR statement.

Russian authorities also moved to reintroduce grain industry protections, stating that the government would develop proposals to control exports within 24 hours.

Dmitry Medvedev, Russia's Prime Minister, said: "We had a good harvest but at the same time, due to the volatility of the ruble, prices are very advantageous and exports have risen considerably".

As the rouble has crumbled over the year, the price of imported goods has risen, putting pressure on Russian budgets.

The CBR now expects that the resultant inflation will reach double digits by the end of the year.

Controls on grain may in turn help to keep a lid on increases in bread prices, although economists warned that shortages may follow.

Meanwhile, US regulators denied clearance to an acquisition by Rosneft, a majority state-owned oil company, putting brakes on its hopes for global expansion.

The decision prevented the purchase of a Morgan Stanley owned oil trading business by the Russian corporation.

"Having invested substantial efforts in the deal, the parties regret that it could not be completed", the two said in a statement .

Rosneft has suffered losses since the Ukraine crisis began, losing out on a deal with ExxonMobil to develop offshore Arctic drilling as a result of sanctions.

Despite the assorted storm clouds assembled over the Russian economy, the country's currency rallied somewhat yesterday.

At its high against the dollar, the greenback purchased a mere 54 roubles, compared with more than 79 last Tuesday.

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