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UPDATE 1-Russian banking sector ready to live without COVID-19 support, says c.bank governor

* C.bank to scale down banks’ COVID-19 support - governor

* Measures secured $13.6 bln in additional banking capital

* Banks have passed peak in loan restructuring

* May need to cover 2-3% of total loan book with more provisions (Adds details, quotes, background)

MOSCOW, Feb 18 (Reuters) - Russian Central Bank Governor Elvira Nabiullina on Thursday said the peak of loan restructuring had passed and that the banking sector was ready to live without COVID-19 support from the regulator.

Like elsewhere, the coronavirus pandemic saw many entities losing their revenue and hitting Russians’ incomes as a result, and the central bank softened some of its financial regulation rules last year to try and avoid a banking crisis.

The measures - ranging from lower capital buffers and provisions to emergency liquidity lines - secured banks with 1 trillion roubles ($13.6 billion) in additional capital, equal to 10 trillion roubles in new loans, Nabiullina said.

“We see no negative side effects from scaling down anti-crisis measures,” she told an online meeting with a Russian banking lobby group. The central bank plans to withdraw softer regulation rules introduced during the pandemic from July 1.

Nabiullina said banks would have to create extra provisions as 2-3% of the loan portfolio could become bad loans, but said the central bank did not see any debt-related problems in the Russian banking system which has 6 trillion roubles in capital.

As the banks are gradually recovering from the economic consequences of the pandemic, the central bank may even consider to tighten consumer lending regulation to prevent a bubble in the most marginal business area for the lenders, she said.

Standard & Poor’s ratings agency warned in a report last month that Russian banks could lose between 1.4 to 1.6 trillion roubles in net interest income in 2021-2022 amid “narrower interest margins linked to low interest rates”.

Nabiullina, who kept the key interest rate at a historic low of 4.25% last week, shared the concern on Thursday, saying that the banks lost 20 basis points in their margin last year but the drop could deepen further amid low rates.

S&P estimates that the net interest margin could fall by between 50 to 75 bps this year to a historic low of 3.25%-3.50%, and by another 25 bps in 2022. ($1 = 73.6750 roubles) (Additional reporting by Elena Fabrichanya and Alexander Marrow; editing by Emelia Sithole-Matarise)

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