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July 18, 2004 by AK

Banking Non-Crisis

The Wall Street Journal apparently has a piece on the recent “banking crisis” in Russia, pointing out it is an opportunity for major international banks to finally get a juicy share of the Russian market. Not that it’s a true banking crisis–no fundamentals have changed since, say, a month ago. Nothing like 1998, when the government both devalued the national currency and defaulted on its ruble debt–and underlying that was a period of steadily low, sometime single-digit oil prices. What we’ve got now is a combination of factors.

a) A run on Alpha Bank–one of the largest private banks in the country–provoked by weird rumors. b) The bankruptcy of Guta Bank, a top-20 private bank with a retail network. Despite its healthy balance sheet, Guta found itself locked out of the interbank market: major banks mysteriously refused to lend to it. The Central Bank, oddly, did not step in, and Guta became insolvent. The Central Bank, however, expressed satisfaction when VTB, a large government-owned bank, announced it was about to buy what remained of Guta. c) The Russian banking system has never been a banking system. Retail banking is underdeveloped, while most private banks, even if they are in retail, function primarily as clearing houses or private equity vehicles, or transfer capital within so-called financial industrial groups. The largest bank by all counts, Sberbank, has the largest retail network and remains state-owned.

My feeling is the Kremlin has a plan of bank reform that will drive out of business those major private banks that are likely to develop a retail franchise shortly, leaving Sberbank and a couple of other state-owned banks to compete with international majors. (None of these would ever finance the political opposition.) The WSJ correctly points at Citibank as a likely beneficiary of the “crisis.” Citi has been active in Russia for years, expanding operations very slowly, waiting for the right moment. For now, though, Raiffeisenbank of Austria seems to be way ahead of Citi on the retail front.


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