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Russian banks: immediate crisis averted, but risks loom

Russia’s banking sector has held up better than might have been expected through the initial stage of the crisis due to large, timely and widespread policy support. But banks will now face the challenge of rising loan losses. While the capital buffers of Russia’s largest banks appear sufficient to absorb large losses and a plausible rise in NPLs from 8% to 20% may require recapitalisations of only 1-2% of GDP or so, an impaired banking sector adds to the reasons to think that the eventual economic recovery will be sluggish.

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