By NATALIYA VASILYEVA

MOSCOW (AP) -- Pawnshops have taken advantage of Russia's credit crunch in boosting their lending by 18 percent last year, the Central Bank said in a report.

The bank said in its annual report that pawnshops "proved to be the only source of credit for many individuals and small companies" last year as rates on some bank loans reached 25 percent per month. Pawnshops typically charge the equivalent of about 10 to 15 percent a month.

Pawnshops showed a strong performance last year because Russia faced the downtrun with "a poorly diversified and underdeveloped set of lending instruments," Yaroslav Lissovolik, chief economist of Deutsche Bank in Russia, said Wednesday.

The number of pawnshops has increased by 25 percent in 2009 to about 5,000, according to the Central Bank report that was released Monday.

The report acknowledged that an 18 percent rise in lending by pawnshops somewhat lessened the threat of a full-fledged credit freeze last year.

Russia's banking sector has been hit hard by the global downturn. Fearing a rise in non-performing loans, most banks froze lending in the fall of 2008 and have not since boosted it to levels anywhere close to the pre-crisis lending high.

Central Bank chief Sergei Ignatyev lamented in December that corporate lending remains flat while retail lending is declining.

In order to lure people away from pawnshops banks should try harder and work more with their client bases, analysts said.

"Lower rates won't do the trick," Lissovolik told The Associated Press. "Banks should diversify the services they provide and single out categories of individuals and companies that could receive special terms for their loans."

Russia's economy has recently emerged from its sharpest recession in a decade. Its gross domestic product contracted by 8.5 percent in 2009, although the economy has been growing for two consecutive quarters and is forecast to rise by at least 3 percent this year.

Russia adopted a law last month barring banks from changing interest rates on loans and mortgages during the credit period, which the government hopes will increase people's trust in banks.

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