Loan default leaves Russian bank with 40,000 quarantined pigs as collateral

With so many loans defaulting, some banks are faced with an expected surplus of seized collateral. I’m sure they’re fine with jewelry, cars, property deeds and maybe even stock in certain companies. But what happens when the loan was issued against, say, 40,000 pigs? If you’re Russia’s National Reserve Bank, you take those little piggies to market. If you can.

From the Moscow Times:

When billionaire Alexander Lebedev’s National Reserve Bank seized collateral offered against a loan from a cash-strapped borrower, a health quarantine was slapped on the security: 40,450 pigs.

“We had a court decision to take away the collateral, which is the pigs,” Lebedev, 49, said in an interview. The borrower, a farm near Samara, agreed “with the local authorities to establish a quarantine” against African swine fever. Lebedev is still waiting to collect the pigs offered against a loan of 100 million rubles ($3.5 million). Live pig costs an average of 78.4 rubles ($2.70) per kilogram, the National Meat Association says.

Russian lenders are seeking to recoup losses by accepting a range of collateral, including stakes in lingerie retailers and grocery stores. Banks have been hit by a surge in nonperforming loans, which Moody’s Investors Service estimates may rise to 20 percent of the total by year-end. The bad debt threatens to stall lending and may jeopardize economic recovery, the Economic Development Ministry says.

“It is not a viable strategy for a bank because banks aren’t doing their core business there,” said Yevgeny Tarzimanov, assistant vice president and banking analyst at Moody’s in Moscow. “They could be stuck with those assets for a number of years.”

According to Standard & Poor’s, Russian banks are known to carry “very high risk” when compared to their peers around the world. According to Lebedev, loans secured against so-called “strange assets” may account for five percent of his bank’s portfolio. For the largest state banks, they may account for one-fifth. Which means, if you’re the rare pig-farmer who’s still liquid, it’s time to go shopping..

“We have no idea how to build roads, milk cows or pour metal,” Vladimir Tatarchuk, co-head of corporate finance at Alfa Bank, told reporters Oct. 23. “We’re finance professionals, that’s what we do. We have no plans to develop other businesses. If we have an opportunity to sell immediately” assets taken as collateral, “we’ll do it, even if we lose some potential upside just so we can recover our money.”…

Meantime, Lebedev is still waiting to collect the pigs, which he plans to take to a slaughterhouse or another farm.

“One of the big risks is how do you protect your investment against people who don’t want to pay you back anything,” he said. “But you don’t sit and wait until the economy switches on again. You do something about it.”

via Strange Collateral Burdens Banks | The Moscow Times.