Foreign banks eyeing Russia
Novosti economic commentator Nina Kulikova.)
gradual improvement of the macroeconomic situation in Russia is making its
market more attractive for foreign investors, including in the banking sector.
According to the latest data of the Central Bank of Russia, the share of
non-residents in the aggregate capital of Russian banks has nearly doubled in
2005, from 6.2% at the beginning of 2005 to 11.2% early this year.
Russian banking sector posted intensive growth in the past few years, largely
due to successful reforms on the country’s financial market. The system of
insurance of individuals’ deposits was created and a law on credit bureaus was
enforced in 2005. Russian banks are gradually converting to international
financial reporting standards, which is strengthening the national financial
sector and making it more strategically stable and investment attractive.
actions of the Central Bank to cleanse the banking system of dishonest players
and unviable organizations are facilitating transparency and high quality of
services and governance. The number of players in the banking sector is
decreasing, while banks are becoming larger.
Deutsche Bank Moscow president Alexis Rodzyanko said
the restructuring of the banking system had progressed considerably in the past
years. “Changes in the Russian banking system were especially marked in the
past three years,” he said. “After reshuffling their management, the Central
Bank and the Federal Service for Financial Markets got down to the bank reform,
meaning the structure of the banking system.”
banks are becoming increasingly active on the Russian financial markets, but the
form of their involvement remains an issue of discord.
of now, foreign banks are allowed to open subsidiaries in Russia with the
permission of the Central Bank. The authorized capital of a subsidiary should be
not less than 5 million euro, and 75% of the staff and 50% of the board of
directors should be Russian citizens. A subsidiary must act as an independent
legal entity in compliance with Russian law and fulfill all directives of the
Central Bank of Russia. The latter has the right of bank supervision over
subsidiaries and can impose sanctions in case of violations. Foreign banks also
may be minority shareholders of Russian banks.
during negotiations on accession to the World Trade Organization (WTO) Russia
was faced with the demand to open the door to branches of foreign banks.
Russia’s main opponent in this issue is the United States.
subsidiaries, branches are a structural part of the head company and are
therefore subordinate to it and are governed by the laws of the country where
the head company is registered. Therefore, all transactions between the branch
and the head company are termed internal and cannot be controlled by the Russian
Russian negotiators at the WTO talks say firmly that allowing the branches of
foreign banks into the country is fraught with major problems for its
underdeveloped banking system. They say that Russia will not allow foreign banks
to open branches in the country and foreign banks will have to continue
operating here as subsidiaries. President Vladimir Putin has recently supported
this stand. “I want to confirm that the Russian government agrees with the
national business community that the operation of foreign banks’ branches in
Russia should be limited now,” he said.
Gref, Russia’s Minister of Economic Development and Trade, said the operation
of foreign banks’ branches in Russia would disrupt the equality of competition
with Russian banks because Western banks can attract cheaper resources.
“Foreign and Russian companies should have equal conditions of competition. If
a foreign bank or insurance company wants to work on the Russian market, it can
establish a subsidiary here. This entails higher standards of operation but
equal conditions for all market players,” he said.
are also due to the impossibility to track the movement of capital in modern
conditions, as well as the struggle against terrorism and money laundering.
“Some banks are not welcome in Russia,” Gref said. “These are the banks of
third countries that do not always operate aboveboard, financing terrorism and
laundering dirty money.”
Murychev, president of the Association of Regional Banks of Russia, said opening
branches would benefit foreign banks, because their operation would be cheaper
and they would not have to work according to Russian laws or pay taxes to
Russia. In fact, they do not need to open branches because subsidiaries can do
everything branches do, including have access to the resources of the head
have taken a moderately liberal attitude to them, because we give them an
opportunity to work” in Russia, he said. “But we must not open all doors.
This is a question of principle, and I am sure that it will not hinder
Russia’s accession to the WTO.”
are no obstacles to the work of foreign capital in Russia’s banking sector,
said Vladimir Safronov, deputy director of the Central Bank’s banking
regulation & supervision department. “Foreign capital can operate in the
form of resident banks with predominantly foreign capital,” he said. “In my
opinion, the issue of foreign banks’ branches is not a problem at all.”
of February 1, 2006, 136 of the 1,199 banks operating in Russia were registered
with foreign capital. As many as 42 of them are 100% foreign owned, and the
share of non-residents is 50% to 100% in 11 banks and 20-50% in 14 lending
organizations. Foreign banks’ subsidiaries are located in 30 members of the
Federation, including 64.7% of them in Moscow.
looks as if a growing number of foreign banks are accepting Russian rules of the
Bank wants to be regarded as a Russian bank here,” said Alexis Rodzyanko.
“On the one hand, it is an international financial company with huge
possibilities, but, on the other hand, it is a Russian bank with foreign
capital. Russia is part of the European community and so leaving Russia would be
the same as leaving European markets.”
influence on the Russian financial market has been growing. The subsidiaries of
foreign banks, which have bigger experience and progressive technologies, are
gradually winning over the Russian market.
aggregate authorized capital of all Russian lending organizations has grown by
16.8% in 2005 and amounted to about $16 billion as of January 1, 2006. Foreign
investment in the capital of Russian banks has grown by 110% to $1.8 billion.
Foreign investments into Russian banks have grown faster than their authorized
capital. As a result, the share of non-residents in the aggregate authorized
capital of all lending organizations in Russia grew by 11.15% by January 1, 2006
against 6.19% a year before.
is growing commensurately. New foreign players are coming to the Russian market,
while old-timers are strengthening their positions and spreading to the regions.
Citibank is working very well in the retail sector and plans to double the
number of divisions this year (it has 29 so far). Last year, the French Societe
Generale bought the Samara-based Promek-bank (auto loans) and DeltaCredit
(mortgage programs). BNP Paribas announced the intention to open 150 offices in
Russia, and the Austrian Raiffeisen International made public the acquisition of
Impexbank, which has a ramified retail network in the regions.
2005, the Central Bank of Russia registered two new banks with 100% foreign
capital, OOO Morgan Stanley Bank and ZAO Swenska Handelsbanken. Several banks
have increased their authorized capital with foreign money, some of them
becoming fully owned by non-residents (including ZAO Raiffeisenbank Austria and
BNP Paribas ZAO).
also can get a part of capital through initial public offerings (IPO). It has
been estimated that foreigners may acquire more than 10% in Rosbank and
Vneshtorgbank during their IPO (Gazprombank is preparing an IPO too). The share
of foreign capital in major Russian banks will most likely continue to grow.
banks’ subsidiaries and Russian banks operate by the same rules here, but
foreigners have competitive advantages, notably experience accumulated on global
markets. It is not in the interests of the Russian financial market to give them
additional advantages by allowing to open branches.
the Russian authorities are pursuing a policy of attracting foreign capital,
which is why they say that a ban on foreign banks’ branches does not amount to
a ban on the inflow of foreign capital. -0-