The Slog has learned that around 70% of Russian bank loans are guaranteed by property – a sector that is about to go back into freefall – and that the Government owned RBS bank is up to its neck in such deals.

While the EU has a strong so-called ‘neighbourhood policy’ (it will loan billions to developing East European economies outside the Union between now and 2013) one neighbour of which it has to be wary is of course Russia. To keep the Russians sweet, for example, the policy referred to above does not include the no-man’s-land State of Belarus. But in fact, Russia itself faces a banking crisis at least on a par with that suffered by the USA two years ago.

The facts are familiar: silly lending targets and relaxed rules about collateral mean that a horrendous percentage of Russian private and business loans are backed by properties worth nowhere near their original stated value. Unlike Russian stock values, which rallied last year after a deep fall in 2008, property prices have lost 30-50% since peaking in 2007 – and have yet to recover. Many Russian observers (including Slog contacts) believe that, as in the West, a further negative correction is inevitable.

“The structure of collaterals with the top 20 Russian banks shows that the share of property exceeds 70 percent,” said Svetlana Sagaydak, a director for managing problem assets at Sberbank. Banks suffered huge losses last year due to increased bad loans charges, and were unable to sell the related collateral for enough to cover their losses. “Some banks have already loaded up to one third of their balance sheets with non-core assets in a hope to sell them when the prices go up,” said Alexey Chalenko, an advisor to Uralsib bank.

Is this of any interest to us? It most certainly is: much of the outstanding ‘toxic’ debt lurking unanalysed in the UK’s largely taxpayer-owned banks is in turn dependent on the survival of Russian banks….and a variety of cowboy oligarchs. For the British banks (most notably RBS) commercial real estate is the most troublesome sector, in the light of falling property values, rising tenant failures, increasing vacancy rates and suspended development projects. But what is less widely known is the sheer level of the Scottish bank’s exposure to Russian wobbles.

One example involves Chelsea owner Roman Abramovich, and his Evraz company, the most heavily indebted of Russia’s steelmakers. Evraz has an outstanding RBS Greenwich Capital and GE Capital loans – to the tune of a $550 million five-year asset based revolving credit facility, and a $175 million five-year term loan facility. The facilities are secured entirely via the property assets of Evraz and its subsidiaries. That’s just one agreement with £720 million of taxpayers’ money secured against assets that have fallen 30%…and have much further to go.

Last month, dozy MPs continued to blast RBS about the ‘risible’ amounts they are lending British business. The bank, said Chancellor Alistair Darling in his Budget speech, is ‘committed’ to funding mortgage and business loans worth £25 billion, in return for taxpayer support.

But as The Slog has been saying throughout 2010 to date, this target is a fantasy. RBS cannot lend any money, because its toxic commitments would make such lending utterly foolhardy.