A Moscow conference heard Finance Minister Aleksey Kudrin warn the share market was overheated with speculative capital, while the prospect of a withdrawal of banking sector liquidity support also caught attention.

The RTS and Micex both added another 1% or more to their losses this week after Kudrin warned that the 128% rebound since the market bottomed out in February was in part being fuelled by ‘speculative capital’ and warned against buying in. Then, to further take the gloss off Russian stocks, he tipped the oil price to average about $58-$60/bbl for next year and 2011.

Both, he said, would come under pressure downward pressure when the range of stimulus measures pumped into the global economy over the last year, was eased back, with rising interest rates, when major economies were surer of an economic rebound, further paring the availability of cash to fuel speculation. Russia, which has been a notable beneficiary, as a major emerging economy based almost solely on commodities, was likely to feel the impact, with stocks likely to provide the warning.

“If measures supporting liquidity in the global economy are wound down via increases in interest rates we may see the capital outflows from emerging markets. It means we could see some outflows from Russia’s stock markets.”

The availability of credit is likely to be a key factor in the strength of any Russian economic rebound, and the same conference heard from the Central Bank of Russia, that the banking sector is “good” with a Non Performing Loan problem faring better than predicted and a growing deposit base.

But bank chiefs, including MDM Bank Chairman, Oleg Vyugin, were less sanguine as they mulled a future with less liquidity support from the government.

“We have to think not about when we will wind down fiscal help, but what will we have instead?”

Alfa bank says Russian banks would need up to $80 billion dollars in additional capital in the next two or three years to progress from survival to growth, and Head, Pyotr Aven, believes that handing money to private banks will provide more long term economic benefit.

“Give the money to the private banks – otherwise you will spend it yourself and that will be a disaster because you will be guessing who to give it to.”

Director of Macroeconomics Studies at the Higher School of Economics, Sergey Aleksashenko believes that the Central Bank is optimistic about the banking sector and warns that it still needs to address funding issues with long term implications.

“Banks need cash as they are not in as good position as the Central Bank reports. They have huge bad debts, they’ve restructured every forth rouble in credits – which means they will hardly get any cash flows in the nearest years.”

Although the Central Bank says it has the reserves to address any crisis in the financial sector, it is unlikely to bring them to play unless that crisis unfolds. Until then, the potential of a NPL based funding problem is a key stimulus for banking sector consolidation – a key Central Bank aim.