Sberbank expands its defense loan portfolio to $14.6bn

Russia’s biggest lender, Sberbank, announced Thursday it will increase its loan portfolio for defense industry investments to 464 billion roubles ($14.6 billion), which are expected to boost the sector by a projected 38%.

Though the military equipment sector often yields low returns, Sberbank reports it controls 36.4%  market share. Thursday’s announcement reaffirmed it would facilitate loans to military equipment manufacturers.

"This kind of financing doesn't bring big revenues, but it works well for us since there is very little default taking place," Sberbank’s deputy chief Vladimir Yashin commented.

According to Yashin, the defense industry is also a major account holder at the bank, with deposits up 77 percent to 131 billion roubles at the end of 2012. The bank now services almost 1,400 defense industry companies, or half of Russia’s defense contractors.

"While there is a defense sector, there is Russia; without it, Russia will not exist," said Yashin, stressing the importance of defense services for Sberbank.

Russia's defense industry is heavily subsidized by the federal government.

Through 2020 it is slated to receive 20 trillion roubles ($632 billion), and in November the Kremlin decided to increase its military spending to about 3% of its GDP.

Compared to the world’s largest military super spender, Russia’s allocation is still relatively small. President Putin plans to allocate $69 billion for defense spending for 2013, whereas Obama will spend $550 billion.

Aleksey Kudrin, Russia’s former finance minister, voiced concern for the swelling support the government is pumping into the arms industry.

“We are approaching the allowable limit on expenditure,” Kudrin said at a finance conference hosted by Sberbank in Moscow.

“The increase in the defense budget is not supported by additional funding,” he added.