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Banking 1991-2000
In the last ten years, the development of the Russian banking system has amounted to redistribution of the inheritance passed down from the USSR. Logically enough, the largest Russian banks are state banks, which have 36% of the assets of the banking system. By world standards, the banking system itself is not very large - it is in fact smaller than almost any major bank in developed countries. The total assets of all Russian banks add up to about $80 billion, whereas the assets of any major world bank are close to $1 trillion.
Today there are about 1300 banks in Russia, with the largest of them concentrated in Moscow and St. Petersburg. The Russian banking system had just as many banks in 1991, when it was still Soviet. Up to 1995, the number of banks increased to 3000. However, for the last five years, their number has been decreasing.
Recently, the Bank of Russia and the government have nurtured plans to speed up this process artificially. In their opinion, the country needs a relatively small number of large banks. Meanwhile, in the opinion of international financial organizations, the banks should not be state banks, and in fact, plans to privatize state banks have already been worked out. The problem is that there is not enough money in Russia to buy them. This means that the Russian banking system has every prospect of developing in the same way as in other Eastern European countries, that is, to pass into the hands of foreigners.
HISTORY: 1991-2000
The history of the Russian banking system is perhaps the best illustration of the thesis that society develops in spirals. In the last ten years different people, within a span of a few years, have advocated the same ideas and have made the same mistakes. Today, banking history in Russia has gone around two circles and is entering a third
1991
On March 22, the Central Bank of Russia established the procedure for the issue of securities by commercial banks. From that time, Russian banks gained an outlet to the stock market.
On April 2, the "Regulations for Buying and Selling (Transferring) Currency Exports Abroad through Citizens' Personal Funds" approved by the State Bank of the USSR entered into force. In this way, the creation of the Russian foreign exchange market began.
On April 9, the first auctions on the State Bank's currency exchange were held. Ten commercial banks and one financial organization took part.
On August 26, following the unsuccessful coup which led to the demise of the USSR, a group of representatives of the Ministry of Finance of the RSFSR entered the office of chairman of the governing board of the State Bank of the USSR Viktor Gerashchenko, and demanded the keys to the office and vaults from him, announcing that he had been removed from the day-to-day management of the State Bank of the USSR. Nevertheless, Gerashchenko officially remained as head of the State Bank for another three months until he submitted a letter of resignation.
On September 26, Kredobank presented the first Visa currency credit cards issued by a Russian commercial bank. The history of the plastic card market in Russia began at this moment.
On December 4, the Bank of Foreign Economic Activity (Vneshekonombank) of the USSR announced a suspension of the USSR's debt payments to all world financial organizations and banks for an indefinite period. It resumed its activities three years later, based on the presidential decree "On Certain Aspects of the Activity of the Vneshekonombank of the USSR." According to the decree, the bank officially became a state financial institute specializing exclusively in servicing the foreign debt and assets of the former USSR. Thus, there appeared in Russia the largest bank that has up to recently operated without a license from the Central Bank.
On December 20, the State Bank of the USSR was liquidated. Its successor was the Bank of Russia, which had been formed on July 13, 1990. It was headed by Georgy Matyukhin.
1992
On January 3, the Bank of Russia's first ever intervention on the currency exchange took place, as Central Bank head Georgy Matyukhin tried to maintain the ruble exchange rate. It has subsequently become a common method of supporting the exchange rate.
On April 28, the first acquisition of a former Soviet bank abroad by a private Russian bank was reported. At a meeting of the shareholders of Ost-West Handelsbank held in Frankfurt the decision was made to transfer ownership of 80.6% of the bank's capital to Tokobank.
On July 16, Georgy Matyukhin submitted his resignation. Viktor Gerashchenko was named acting chairman of the Central Bank, and the Supreme Soviet confirmed him in this post four months later.
On August 14, the decree of the Russian Federation president "On Commissioning a System of Privatization Checks in the Russian Federation" was issued. This marked the beginning of voucher privatization in Russia.
On October 1, the first voucher sale by tender was held on the Russian Commodity Exchange (RTSB).
On October 9, currency exchange operations began at the first Russian exchange office, VAO (Foreign Economic Joint Stock company) Intourist. Many Russian banks grew out of just such exchange offices.
On November 4, the Supreme Soviet confirmed Viktor Gerashchenko as head of the Bank of Russia.
On December 8, decree of the Russian Federation president "On the Federal Treasury" was issued, which was the beginning of a lengthy fight to transfer budget accounts from commercial banks to the treasury. It was by servicing these accounts that many banks had grown up to become leaders of the Russian banking industry, and it was only after eight years that the major part of the accounts ended up in the treasury.
1993
On January 6, the Central Bank circulated a telegram to banks advising them that they would have to increase their capital stock to 100 million rubles or else they would be liquidated. This was the first attempt to liquidate small banks. The minimum amount of capital stock was then increased to 5 million ECU. Four years later, the Central Bank decided to reduce this sum to 1 million ECU. The last attempt to get rid of small banks was undertaken this year (2001), when the issue of liquidating banks with capital of less than 200 million rubles was being discussed. Aleksandr Mamut, who represented MDM Bank at the time, was the author of this proposal. However, the attempt failed too, as the government did not support the proposal.
On February 19, the Russian Parliament adopted the resolution "On the Issuance of Treasury Bills" (GKO).
On April 7, the board of the Russian Ministry of Foreign Economic Relations made the decision to transfer the accounts of all exporters of strategically valuable raw materials to 15 authorized banks. This was the first major scandal involving the division of state financial flows among a group of selected banks.
On May 18, the first GKO placement auction was held.
On October 19, individuals received the opportunity to buy GKO. Thus, construction of the GKO pyramid began, which would come crashing down within five years.
1994
On February 1, the presidential decree "On Certain Aspects of the Activity of Vneshekonombank of the USSR" was issued.
On September 1, the Central Bank adopted a document entitled "An Interim Regulation on Temporary Management of Commercial Banks and Other Lending Institutions." This was the first serious step taken by the Bank of Russia toward rectifying the difficult situation in the banking system.
October 11 was a day that would go down in Russian history as "Black Tuesday." The ruble exchange rate fell 845 points to 3926 rubles/$.
On October 15, Viktor Gerashchenko submitted his resignation from the post of Chairman of the Central Bank. His first deputy, Tatyana Paramonova, became acting head of the Central Bank.
On October 20, the Chara Bank stopped making payments and accepting deposits. This was the first failure of a major Russian bank. The Gorny Altai Bank and many others were next. Chara Bank's license was revoked a year and a half later, as was that of Gorny Altai Bank.
On November 25, the president of the Chara Holding Company, 44-year-old Vladimir Rachuk, arrived at the company's office, where his apartment was located. There, he shut himself in the bathroom. After half an hour, the maid became worried about the incessant sound of running water and knocked on the door, but got no response. She called the company guards, who broke down the door and found the banker dead. According to the reports of the ambulance crew and a forensic medical expert, Vladimir Rachuk's death was the result of acute heart failure.
On December 2, the central office of the commercial Most Bank was taken over. This was the first case of the use of armed law-enforcement personnel to put pressure on a commercial bank (it was later called a "masquerade"-because the raiders were usually masked). Later on, this takeover method was widely used both under pressure of the authorities and in the fight between banks.
1995
On February 27, a law prohibiting the Bank of Russia from having a share in the charter capital of commercial banks came out. This was the first attempt to privatize the Sberbank. The struggle with the Duma, which was opposed to this measure, lasted almost six months until the federal law "On the Introduction of Amendments and Additions to Article 5 of the Federal Law 'On the Introduction of Amendments and Additions to the Law of the RSFSR "On the Central Bank of the RSFSR (Bank of Russia)"'" came into effect. According to this law, privatization of the Sberbank would be carried out only by a specially passed law.
On March 15, Order #1 of Moscow Mayor Yury Luzhkov "On Priority Measures for the Creation of a Municipal Bank" was officially distributed. This document marked the start of a new round in the struggle for the capital's budget funds. After the Bank of Moscow was established, the city's main financial flows started moving through it rather than Most Bank and other banks with close ties to the mayor.
On March 30, Vladimir Potanin, the president of ONEKSIM Bank, made a sensational proposal to the government on behalf of a consortium of commercial banks: the banks were prepared to credit the state on the security of blocks of shares of major state enterprises. The project was implemented. In November and December, blocks of shares of a number of leading enterprises (RAO Norilsk Nickel, the oil companies YUKOS and LUKOIL, and others) were put out for so-called share-for-loans auctions. The auctions were accompanied by a series of notorious scandals. As a result, large financial and industrial groups appeared on the basis of MENATEP and ONEKSIM banks, the Russian Credit Bank, and Inkombank.
On April 10, Vadim Yafyasov, an executive of Yugorsky Bank, was murdered in the entrance of his apartment building on Kutuzovsky Prospekt. Yafyasov, who was also the commercial director of the Krasnoyarsk Aluminum Smelter, had been counting on the possibility of transferring the smelter's accounts to Yugorsky Bank.
April 14 was the start of a crisis at the Moscow Interregional Commercial Bank (MMKB) whose failure worsened the banking crisis in Russia, which reached its peak in August -September 1995.
On April 18, the Bank of Russia issued Addition #2 to the "Statute on the Procedure for Forming a Fund of Required Reserves of Commercial Banks and Lending Institutions in the Central Bank of the Russian Federation," which toughened the demands on commercial banks. This was the start of a noisy conflict between commercial banks and the management of the Bank of Russia headed by its acting chairman Tatyana Paramonova, which was a major reason for the Duma not confirming Paramonova in this post. Vladimir Vinogradov, president of Inkombank, was the most vocal opponent of the Bank of Russia's actions.
On May 4, the merger of two major commercial banks, the National Credit Bank and the Industry Service Bank, was announced. Although the news was initially interpreted as a sign of the strengthening of National Credit's position, it actually marked the beginning of a deep crisis at the bank.
On July 5, there was an announcement on the introduction of a currency corridor, i.e., the limits of fluctuations of the ruble exchange rate with respect to the dollar. For commercial banks, this restricted their scope for speculation. Within three years, this policy ended in a steep devaluation of the ruble and Russia defaulting on its debts.
On August 4, the federal law "On the Introduction of Amendments and Additions to Article 5 of the Federal Law 'On the Introduction of Amendments and Additions to the Law of the RSFSR "On the Central Bank of the RSFSR (Bank of Russia)"'" came into effect. Privatization of the Sberbank was put off for an indefinite period.
On August 20, unknown persons murdered Oleg Kantor, the president of Yugorsky Bank. Not long before his death, Kantor had received threats, but he did not leave Russia and continued to live at his dacha which was situated on the grounds of the Snegiri government health center and which he rented for $240 000 per year.
On August 24, the Moscow interbank credit market collapsed. This day, known as "Black Thursday," was one of the greatest shocks in the Russian financial market. This was the first full-scale banking crisis in Russia and the main reason for Tatyana Paramonova's dismissal.
On November 8, a decree relieving Paramonova of her duties as acting head of the Central Bank was issued. Sergei Dubinin, the former acting Finance Minister, was promoted to this post (he had been fired from the Ministry of Finance after "Black Tuesday," December 11, 1994). On the eve of his appointment to the Bank of Russia, he was working as the deputy chairman of the governing board of Imperial Bank. The Duma almost unanimously confirmed him in the post of Chairman of the Central Bank on the first vote.
1996
On January 23, Andrei Kazmin, the Deputy Finance Minister, was elected chairman of the governing board of Sberbank, replacing Oleg Yashin. Since then, Kazmin has remained as the head of Russia's largest bank.
On January 30, Yury Butok, director of the Central Bank of Russia's branch in Estonia, was arrested at Sheremetevo-2 airport. Officers of the Chief Military Prosecutor's Office charged him with accepting bribes of about $1.5 million and embezzling 500 million rubles with the use of forged documents.
On February 3, the law "On Banks and Banking Activity" was signed by the president of the Russian Federation. The new law specified a precise list of banking operations requiring a license from the Central Bank. Now only banks were allowed to concurrently attract funds for investments, to invest them on their behalf, and open and maintain accounts.
On March 14, Chara Bank's license was revoked.
On March 18, the apartment of Central Bank chairman Sergei Dubinin was fired on. Three bullets hit a window, and five more lodged in a wall. The investigative division of the 2nd District Office of Internal Affairs of Moscow's Central District filed criminal charges of "malicious hooliganism notable for its exceptional cynicism."
On April 23, Yury Agapov, head of Kredobank, asked the Central Bank to grant stabilization credit. This was the beginning of the collapse of one of Russia's largest banks. Temporary administration was brought into the bank in the fall.
On May 5, the Gorny Altai Bank lost its license.
On May 20, narcotics were found in the car of Boris Fedorov, head of the National Sports Foundation and the National Credit Bank, who had replaced Oleg Boiko at the bank in fall 1995. He was arrested, even though he was traveling in a car with a flashing blue light, guards, and a special document prohibiting a search. After three days, he was released on recognizance not to leave and was removed from all his posts. Less than a month later, an attempt on Fedorov's life was made.
On June 14, Kredobank's correspondent account at the Central bank was blocked.
On June 18, an unknown person seriously wounded Boris Fedorov, former head of the National Sports Foundation and the National Credit Bank.
On June 24, the Tver Universal Bank circulated a letter to its branches, instructing them to stop all payments. This marked the collapse of still another major Russian bank On July 8, the Central Bank brought in temporary administration.
On July 25, the board of directors of the Bank of Russia made the decision to set up a special operations department, OPERU-2, to work with large and socially important banks.
On August 15, Vladimir Potanin, the president of ONEKSIM Bank was appointed to the post of First Russian Vice-Premier with responsibility for the financial and economic bloc. In six months, a government commission for monetary policy headed by Potanin would announce a list of 13 banks entrusted to work with budgetary funds.
On October 23, the Bank of Russia brought in temporary administration at Kredobank.
On October 25, the government commission for financial and monetary policy under the chairmanship of First Vice-Premier Vladimir Potanin made the decision to reorganize Agroprombank. The Capital City Savings Bank (SBS) headed by Aleksandr Smolensky won the reorganization tender. The total value of the deal was one trillion rubles.
On December 18, Central Bank chairman Sergei Dubinin announced that no monetary reform-either ruble or foreign currency-was planned for next year. In summer of the following year, he announced the forthcoming denomination of the ruble.
On December 30, the Bank of Russia revoked the banking license of the National Credit Bank.
1997
On January 1, the notorious Article 88 of the Criminal Code of the Russian Federation "Violation of Currency Transaction Regulations," was repealed.
On January 22, the government commission for monetary policy announced a list of 13 banks entrusted to work with budgetary funds.
On February 21, the government commission approved a list of government agent banks whose number grew to 16.
On February 26, the Moscow Court of Arbitration declared the National Credit Bank bankrupt.
On February 28, the Bank of Russia made a decision to decrease the minimum required capital for banks to 1 million ECU.
On April 17, Interior Ministry officers arrested the president and chairman of the board of Montazhspetsbank Arkady Angelevich in Moscow. He was charged with embezzling $7 million belonging to the Edinstvo Bank, which went bankrupt. This bank had been headed by Dmitry Bureichenko, who had disappeared in 1995 owing clients more than $200 million. Angelevich was accused of colluding with Bureichenko.
On June 16, the Bank of Russia sent an official letter to the Basel Committee on Banking Supervision expressing its readiness to subscribe to the fundamental international principles of banking supervision. This marked the start of the conversion of Russian financial accounting to international standards. As a result, a new chart of accounts for banks went into effect from the beginning of 1998. The Bank of Russia intends to complete the conversion to international financial accounting standards by 2004.
On August 4, Central Bank head Sergei Dubinin announced that denomination of the ruble would be implemented starting January 1, 1998.
On August 6, finance minister Anatoly Chubais instructed customs officials and the Ministry of Finance to prevent payment of customs duties to the budget through commercial banks.
On September 17, Russia joined the Paris Club of creditors.
On October 6, Russia signed an agreement with the London Club of creditor banks.
October 23 was a worldwide "Black Thursday." An unprecedented collapse of stock quotations was recorded on the Hong Kong stock exchange: the exchange index fell by 1600 points or 14%.
On October 27, the Dow Jones index fell more than 550 points, badly affecting the Russian securities market, and bidding was halted for the first time in Russian history.
As of November 1, payments in foreign currency were prohibited in Russia, and a new monetary unit, the standard unit (s.u.), appeared in our country.
1998
On May 8, the Central Bank brought in temporary management at Tokobank. This was the first sign of the impending banking crisis.
On August 14, the Imperial and SBS-Agro banks stopped payments, three days ahead of the general crisis.
On August 17, the Central Bank and the government issued a joint statement. The upper boundary of the exchange corridor would be raised to 9.5 rubles before the end of the year. The principle of creating an official dollar exchange rate was changed: the Central Bank began to take into account the interbank market rate, which was considerably higher than the rate set by the Central Bank and the Moscow Interbank Currency Exchange (MMVB). All government security payments (GKO and OFZ) were frozen. The government and the Central Bank simultaneously introduced a 90-day moratorium on banks' fulfillment of their obligations to foreigners.
On August 24, the government of Sergei Kirienko, which had been confirmed on the eve of the crisis, was dismissed.
On August 25, the Imperial Bank had its license revoked, the first one after the August 17 crisis. The bank was only able to get it back two years later, and in the process obtained a sensational court ruling with respect to the Central Bank: the Central Bank was prohibited from revoking Imperial Bank's license.
On August 28, temporary administration was brought in at SBS-Agro Bank and a two-week bank holiday was declared. A year later, another order for bringing in temporary administration at SBS-Agro was signed, and the bank was turned over to the Lending Institution Restructuring Agency (ARKO).
On September 3, the Bank of Russia set an official dollar exchange rate for the first time since August 26: 13.46 rubles/$. The sole transaction in the electronic lot trading system (SELT) was concluded at this exchange rate.
On September 3, private accounts at the SBS-Agro and MENATEP banks, Inkombank, Promstroibank, Most Bank, and Moscow Business Bank were frozen. Depositors at these banks were given the opportunity to transfer their money to the Sberbank at the rate of 9.33 rubles/$. This action continued for one month.
On September 7, Sergei Dubinin, head of the Bank of Russia, submitted his resignation to the president of the Russian Federation.
On September 12, Viktor Gerashchenko again became the head of the Bank of Russia in place of Sergei Dubinin. The former team, including first deputy chairman of the bank Tatyana Paramonova, returned to the Central Bank along with him.
On October 27, Vladimir Vinogradov left the post of president of Inkombank.
On October 29, the Bank of Russia revoked Inkombank's license. Inkombank was declared bankrupt more than a year later.
1999
On February 4, the Prosecutor General's Office published the results of a review of the Bank of Russia. This was the beginning of the scandal involving the Financial Management Co. Ltd. (FIMACO), registered on the Isle of Jersey (Channel Islands). Under an agreement between the company and the Bank of Russia, the Central Bank systematically transferred asset management of the country's currency reserves, IMF credits, and Ministry of Finance securities to it.
On March 22, the Lending Institution Restructuring Agency (ARKO) started working.
On April 24, the former head of the National Sports Foundation, Boris Fedorov, died in his country home. According to the official version, he died of acute heart failure.
On May 29, Imperial Bank got its license back.
On June 18, a restructuring plan for Promstroibank RF was approved. According to this plan, ARKO was supposed to be involved in the bank. However, ARKO refused to reorganize Promstroibank, and in November, the Moscow Court of Arbitration declared Promstroibank bankrupt.
On June 30, the Central Bank's board of directors decided to revoke the licenses of Mezhkombank, Moscow Business Bank, Promstroibank, and ONEKSIM Bank. Such a mass revocation of licenses was unexpected even given the difficulties these banks had experienced after the 1998 crisis.
On August 2, temporary administration was brought in at SBS-Agro.
August 19 marked the start of the scandal involving laundering of Russian money through the Bank of New York. The scandal resulted in serious complications in relations between Russian and foreign banks.
On October 18, Russian Credit bank (Roskred) stopped paying off its liabilities. ARKO, which administered the bank, introduced a moratorium on payments.
On December 16, a certain young man, Maksim Alekseev, under a power of attorney from notary Vladimir Belyaev, to whose account the remains of Tokobank's bankruptcy assets (252 million rubles) had been transferred, in turn transferred all the money to the notary's specially opened new account at Tandem Bank.
On December 23 and 28, Maksim Alekseev took 252 million rubles in cash and disappeared. That was the end of Tokobank's bankruptcy story.
2000
On February 1, Inkombank was declared bankrupt.
On May 17, the Central Bank brought in temporary administration at Most Bank. As a result, Most Bank was handed over to Vneshtorgbank for reorganization. However, within a year, the Central Bank revoked its license and the bankruptcy of Most Bank began..
On July 3, the court halted the bankruptcy procedure for ONEKSIM Bank.
On August 17, Yury Ponomarev, the head of Vneshtorgbank, announced the purchase of the Russian bank abroad East-West United Bank (Luxembourg). This was the first step in the withdrawal of the Central Bank from the capital of Russian banks outside Russia. Within a year, the Bank of Russia sold another Russian bank abroad, Donau Bank (Vienna). Vneshtorgbank became its new owner.
On September 14, the merger of ONEKSIM Bank and Rosbank began.
On September 25, MDM Bank began the acquisition of Conversbank, and on October 24, Andrei Melnichenko, the head of MDM Bank, was appointed acting chairman of Conversbank's governing board.
On September 26, a fight broke out for the inheritance of Inkombank between Guta Bank and Rosbank together with the MFK, particularly for control over the Babaev chocolate concern and the Rot Front chocolate factory.
On October 2, Vneshtorgbank officially announced the purchase of 100% of the shares of Most Bank.
On December 5, Russian president Vladimir Putin demanded that all customs accounts be transferred to the treasury within ten days.
On December 15, the State Customs Committee announced that the transfer of customs accounts to the treasury was complete.
by Maksim Builov
PRESENT
At present, the state is the largest owner of Russian banks. It owns banks through the Bank of Russia, RFFI, regional government bodies, and even state companies. The majority of private banks cater to their true owners, that is, companies or holdings. A small number of banks have been able to get out of this system and become the owners of large industrial or financial holdings. And it is only in recent years that a third force in the form of foreign banks has seriously presented itself.
The State Approach to Banks
As of October 1 of this year (2001), there were 1322 lending organizations operating in Russia. More than half of them at least partly belong to the state; even the state itself does not know exactly how many. In July of last year, the government tried to conduct an inventory of its investments in this sector and counted 469 banks that belonged to it. State structures owned controlling blocks of shares in 36 of these banks, and blocking parcels in 45. However, banks in which the Central Bank had a stake were deliberately not included in these 469 banks. As a result, the Savings Bank (Sberbank) and the Bank of Foreign Trade (Vneshtorgbank), as well as domestic affiliates of Russian banks abroad, were not included in this list. Bank of Foreign Economic Activity (Vneshekonombank) was not on the list either.
When these estimates landed on Mikhail Kasyanov's desk in October, federal or local government bodies, or companies set up by them, had a share in 638 banks, according to the bank balance sheets. The state had a controlling block in 62 of these banks and a blocking parcel in 80 of them. Together with banks that were "counted up" by the government but did not record the relationship with the state on their balance sheets, the number of banks whose stocks or shares belonged to state structures reached 679. Since then, the situation has not fundamentally changed. The reason is simple: the management of a bank in Russia can often act without taking into account the real owner.
The state has proved to be the least demanding of all bank owners, but banks known to be state banks have to serve the interests of the master in full measure. In particular, they have granted credits to state structures without considering how great the probability of repayment was. Thus, banks that serviced agriculture usually went broke, regardless of whether they were called Agroprombank or Rosselkhozbank.
Other perils also lie in wait for state banks. For example, as a result of the last change of command in the Ministry of Railways, it was decided to transfer financial flows from the Railway Bank (Zheldorbank), which had traditionally serviced the Ministry, to Transkreditbank, which the Ministry had recently acquired. However, when Nikolai Aksenenko, the head of the Ministry of Railways was under investigation, the future of this bank also became questionable.
Sberbank and Vneshtorgbank (VTB), the largest long-established state banks, belong to the Bank of Russia. On the one hand, the situation where a regulatory agency owns an entity subordinate to it is totally irregular and international financial organizations vigorously oppose it, insisting that these banks be privatized. On the other hand, the Central Bank simply cannot get rid of its share in these banks quickly. These banks are too large to sell quickly: they account for around 30% of the assets of the entire banking system. They can only be given away quickly to the government, but then they would still be state banks, so this would not be privatization.
Still, under government pressure the Bank of Russia considered the possibility of withdrawing from the capital of Vneshtorgbank and even named the date when this might take place-2003. However, this process could drag on for years, and the possibility of withdrawing from the capital of Sberbank is so far only hypothetical. The issue is not only that Sberbank's assets are almost five times greater than those of Vneshtorgbank, which has the second-largest assets among Russian banks. Sberbank also holds about three-quarters of all deposits of Russian citizens, about 400 billion rubles, and if it appears to depositors that something is wrong at Sberbank, they might just wipe it out.
Vneshekonombank USSR (VEB) is yet another major state bank, but it constitutes a special case altogether. It does not have a license from the Central Bank, which means that there is no license for the Central Bank to revoke. Consequently, there is no threat of bankruptcy, regardless of the situation it is in. And difficult this situation is, since all the Soviet Union's debts, amounting to trillions of rubles, are hanging over this bank. According to official indicators, it is the largest Russian bank. However, it is not really a bank, because it does not have a license. But even if the Bank of Russia had decided to issue a license to Vneshekonombank, it would have had to revoke it immediately. By law, if a bank's capital adequacy is less than 2%, the Central Bank must immediately turn the bank over to the control of ARKO; but at Vneshekonombank, this figure is considerably less than 1% due to Soviet debts. The government will not put Russian debts under Arko's management.
If VEB is divided into a bank proper and a debt agency, the resulting bank will still be one of the largest in Russia, comparable in size to Vneshtorgbank, which in its time was born in the same way. Now the government intends to divide VEB again and at the same time merge the new bank, to be called Vneshekonombank of Russia, with still another state bank, Russian Export-Import Bank (Roseksimbank).
Yury Ponomarev, the head of VTB, has "historically" been considered Viktor Gerashchenko's man. Sberbank, which also belongs to the Central Bank, is considered neutral; its head, Andrei Kazmin, tries to be loyal to everyone. Vneshekonombank is regarded as being close to the government due to the good personal relations between Mikhail Kasyanov, the head of the government, and Andrei Kostin, the head of the bank.
Among the banks which according to Dengi (Money) magazine comprise the 20 largest banks in terms of assets, there are two other forms of state ownership in banks besides Vneshekonombank and banks belonging to the Central Bank. Thus, Gazprombank is a clearing bank of the major state company RAO Gazprom, and none of the shifts at Gazprom and Gazprombank that began after the departure of Gazprom head Rem Vyakhirev will change its status. The bank sits tightly on Gazprom's financial flows, thanks to which its situation is quite stable. However, there is one fundamental weakness: Gazprombank's business is totally dependent on the well-being of its major shareholder.
Another form of state bank consists of banks that belong to regional authorities. They are represented in the top 20 by the Bank of Moscow and Bashkreditbank, which are obliged to serve the needs of the governing bodies in Moscow and Bashkortostan, respectively. Their situation is determined by the personal relations between Andrei Borodin, the head of the Bank of Moscow, and Yury Luzhkov, the Mayor of Moscow, and between Azat Kurmanaev, the head of Bashkreditbank, and Murtaza Rakhimov, president of the Republic of Bashkortostan.
However, to a large extent, Gazprombank, the Bank of Moscow, and Bashkreditbank belong to the same type of bank; i.e., they are clearing banks. The only difference between them is that Gazprombank serves the interests of a company, while the Bank of Moscow and Bashkreditbank serve the interests of local governing bodies.
Private Banking
State companies and regional authorities are not the only ones with clearing banks. Private companies also frequently set up banks to serve their interests. Some of these banks are very large, for example, Surgutneftegazbank, which services the private company Surgutneftegaz, but it is an exception to the rule.
Clearing banks form a significant part of the Russian banking system. They consist mostly of small to medium-sized banks, since the majority of Russian companies are small to medium-sized. Larger banks are a hindrance to the enterprises themselves, which prefer relatively small but trouble-free banks.
In principal, clearing banks also include large banks like the Trust and Investment Bank and MENATEP St Petersburg, which have traditionally served the interests of YUKOS, and Rosbank, which serves the Interros Group. However, even though these banks service the parent companies, they also have a fairly well-developed "outside business." This can also be said of Alfa Bank, which serves the interests of the Alfa Group.
All these banks have one feature in common-by Russian standards, they are quite old, they were large in pre-crisis times, even before the crisis of 1995, and their most important difference from classical clearing banks is that they (or banks whose business they inherited) bought businesses and created holdings around themselves, rather than the other way around. However, businesses bought by the banks in their time have long since outgrown them.
Thus, Mikhail Khodorkovsky, the head of MENATEP Bank, whose successor was MENATEP St Petersburg, bought the large oil company YUKOS at a loan-for shares auction at the end of 1995. Then he organized and headed the Rosprom Group, and both YUKOS and MENATEP were now controlled by Rosprom.
Vladimir Potanin resigned as president of ONEKSIM Bank, whose successor was Rosbank, for the post of First Vice-Premier. In this capacity, he organized loan-for-shares auctions, at one of which ONEKSIM Bank bought RAO Norilsk Nickel. After his time as Vice-Premier, Potanin returned for a year to the office of head of ONEKSIM Bank. In April 1998, like Mikhail Khodorkovsky, he chose to head a group and exchanged his position as head of the bank for the position of head of the Interros Group, which included ONEKSIM Bank.
The most notable acquisitions of Alfa Bank headed by Mikhail Friedman were the Tyumen Oil Company, the ONAKO Oil Company, and the mobile operator Vympelkom. In addition, prior to the 1998 crisis, large banks also actively bought blocks of shares in less well-known companies, mainly for speculative purposes, as at that time they were not aiming to create financial and industrial corporations or holdings. As a result of these acquisitions, various financial and industrial groups, both large and small, appeared.
That is why ten years and two crises later those groups that managed to survive became major private Russian banks. In recent years, Andrei Melnichenko, who created MDM Bank from an exchange point and then went on after the crisis to set up the MDM financial and industrial group, has followed their road. As a result, in 2000, MDM Bank entered the group of 20 largest banks.
Among the 20 largest Russian banks in terms of assets (2001), two stood out: the International Industrial Bank (MPB), headed by Sergei Pugachev, and Globex. They are limited liability banks and do not have shareholders who own large blocks of shares. Therefore, it is impossible to say for certain who owns them and how the share blocks are actually distributed. Most probably, each one of them has a large number of small shareholders who have no connections with one another, which means that the MPB, which ranked third in size in Russia, does not actually belong to anybody. The same was true for Globex. However, these were exceptions among the major banks.
Inexpensive Foreign Banks
Foreign banks have occupied a special place in Russia. As of July 1 of this year (2001) there were 133 banks in Russia in which foreign investors owned any share. Two-thirds of these banks are located in Moscow; only 23 are wholly owned by foreigners. At another 34 banks, foreign investors own more than 20% of the shares, and in 46, foreigners have less than a 1% share.
This is the reason why banks like Avtobank, whose list of shareholders includes the European Bank for Reconstruction and Development (EBRD), and the Vozrozhdenie Bank, which has the Canadian Imperial Bank of Commerce as one of its shareholders, end up in the Central Bank's statistical reports on the list of banks with foreign ownership. Evrofinans and Mosnarbank, whose shareholders include Russian banks abroad owned by the Bank of Russia, are also on this list.
However, in Russia, by foreign banks branches of large Western banks are usually meant. Russian ranches of well-known banking groups such as the American Citibank, Austrian Raffeisenbank, and German Deutsche Bank are in the group of top 20 Russian banks. Formally, they are Russian corporations, although Russian clients of these banks consider them to be full-fledged representatives of the parent structure. In most cases, they indeed help their Russian "daughters" when difficulties arise in order to uphold the "brand name." However, they are not obliged to do this, and in case of serious trouble, can refuse to accept responsibility for the debts of the Russian bank.
The only foreign bank not wholly controlled by any one Western group is the International Moscow Bank (MMB). Its shareholders are several large foreign banks, and the Rossiysky bank and one of Russian banks abroad also own a block of shares. Ultimately, the Central Bank is the actual Russian shareholder of MMB, but its share is less than a blocking parcel.
After MMB's major shareholder, the German HypoVereinsbank bought the Austrian group Bank Austria Kreditanstalt, MMB absorbed the Russian "daughter" of the Austrian bank. If the German bank had wanted to develop an independent business in Russia not based on MMB it could have easily accomplished this using Bank Austria (Moscow), which by then it owned 100%. Obviously, it was interested in business in Russia, as it would not otherwise have undertaken the merger of MMB and Bank Austria.
However, even after the union, HypoVereinsbank did not obtain a controlling block of shares of MMB. In Russia, if you do not have a controlling block of shares of an enterprise or bank, it means that you have to expect to be kicked out of the business at any moment. Moreover, even having a controlling block of shares of a bank is no reason to feel secure: for instance, at Legprombank minority shareholders recently drove out the owner of the controlling block. However, western business operates by different rules and undertaking a dubious machination to kick a partner out of business is regarded there as a shameful act rather than a feat. Thus, it likely that HypoVereinsbank really did not want to acquire a controlling block of MMB shares.
In general, foreign banks have recently been more active on the Russian market. Previously, their presence here was more symbolic than real as if they just wanted to tell their clients around the world that " If the Devil drops you in Russia, we're there ready to serve you!"
Today, the situation has changed dramatically. In 1999, Bank Austria and Raiffeisenbank began serving Russian clients. The MMB, which has long been doing this, stepped up its operations with depositors after the purchase of Bank Austria. And while Sberbank has no competition in the market of private deposit accounts, of which it has three-quarters (none of the foreign banks has even 1% of it), it has slightly more than half of the market in foreign currency deposit accounts, whereas Raffeisenbank and MMB have almost 20%, and their share has recently been rapidly increasing.
ING Bank followed on its heels, and Deutsche Bank, together with Citibank, has announced similar plans to expand into the Russian market. They do not concern only private depositors. Although foreign companies were previously the main clients of foreign banks, today their clients also include more and more Russian companies. Since Russia is currently one of the fastest growing markets, the presence of foreign banks in this country will increase in the near future.
by Maksim Builov
TRENDS
In Russia in the near future, a large part of the bank shares belonging to the state will be put up for sale. This primarily concerns commercial banks belonging to the Central Bank. If the government also decides to share out its banks, the predominant role of state banks in the Russian banking system may gradually become a thing of the past. But for a long time to come, the main processes in the banking system in one way or another will revolve around budgetary funds.
Banks Belonging to the Central Bank
Today, the state owns a large part of the banking system, with the most attractive assets belonging to the Bank of Russia. International financial organizations have vigorously opposed this setup, and are demanding that the Central Bank withdraw from the capital of the banks.
This demand applies most of all to Russian banks abroad. A Russian bank abroad (the German Ost-West Handelsbank) was sold for the first time on April 28, 1992: a meeting of the bank's shareholders held in Frankfurt decided to transfer ownership of 80.6% of its charter capital to Tokobank, which was later transferred to Vneshstorgbank.
Then, in October 1992, the Imperial Bank was about to buy a large block of shares of another Russian bank abroad, East-West United Bank of Luxembourg. However, the deal fell through, and East-West United Bank had to be sold again. On August 17, 2000, Vneshtorgbank (VTB) became its new owner. The third was Donau Bank of Vienna, bought by Vneshtorgbank on May 30, 2001. Yury Ponomarev, the head of VTB, declared that in the foreseeable future, the bank might acquire the remaining Russian banks abroad belonging to the Central Bank.
The threat of privatization has also been hanging over Vneshtorgbank itself, as its controlling block of its shares also belongs to the Bank of Russia. In fact, the sale is set for January 1, 2003. However, it is unclear who will be able to buy Russia's second largest bank in terms of equity capital.
According to the head of the government, Mikhail Kasyanov, only 25% of Vneshtorgbank's shares will remain state-owned. The European Bank for Reconstruction and Development (EBRD) has laid claim to another 25%. The remaining shares will be sold to "outside investors" who will get half of Vneshtorgbank's capital, or about 22.5 billion rubles.
The same processes are going on in the Russian "daughters" of Russian banks abroad. For example, the Evrofinans Bank belonging to the Paris-based Russian bank Eurobank was sold to Gapzprom Investment Holding. The latter in turn resold it to Slavneft, ALROSA, Vneshekonombank, and the Troika Dialog company, which was acting in the interests of RAO UES (RAO Unified Energy System). Something similar could happen to the Russian branch of Mosnarbank, the "daughter" of a London-based bank of the same name.
Sberbank, which also belongs to the Central Bank, constitutes a particularly difficult case. Talk of privatizing Sberbank began in 1995; however, the special laws that are supposed to govern the privatization of Sberbank have still not been passed.
What is most interesting, however, is that the threat of forced reorganization not only hangs over the banks in which the Central Bank has a stake in the capital, but also over the Central Bank itself. Arguments about limiting the Bank of Russia's powers have been going on for a long time; and amendments to the law on the Central Bank were recently adopted in the Duma, according to which part of the Central Bank's functions (functions that are not related to day-to-day management of the banking system) will be transferred to a National Banking Council. The deputies make no secret of their desire to assign bank supervision to an independent structure that is not subordinate to the Bank of Russia.
Banks Belonging to the Government
Though the government has not yet fully sorted out problems related to the banks belonging to it, it is planning to acquire a blocking parcel of shares in Vneshtorgbank. As to the banks under the administration of the Lending Institution Restructuring Agency (ARKO), the agency is resolved to sell them, and many have already been sold.
Within a year and a half, it may even get rid of SBS-Agro and Russian Credit (Roskred), the most complicated cases from the standpoint of reorganization. After that, ARKO itself would either have be liquidated or reoriented. Aleksandr Turbanov, the head of ARKO, is gradually preparing for the worst by systematically cutting staff.
As to Rosselkhozbank and the Russian Development Bank (RBR), Petr Aven, the head of Alfa Bank, and Aleksandr Mamut, the then head of MDM Bank, representing private banks, have proposed making special banks out of them, so they would operate without competing with commercial banks. In the bankers' opinion, Rosselkhozbank and RBR have cheap resources unavailable to other banks and in order to avoid unequal competition, they have to be constrained. The government has shown little enthusiasm for this idea and has still not disclosed its intentions regarding these two banks.
Meanwhile, the government has been unequivocal about Roseksimbank, which was to complete the reorganization of Vneshtorgbank USSR. In 1988, Vneshtorgbank USSR was renamed Vneshekonombank USSR (VEB); two years later, on October 17, 1990, Vneshtorgbank Russia was created from it. However, Vneshekonombank USSR continued operating until December 1991, when the bank's management announced it was halting Soviet debt payments. It was revived by Boris Yeltsin's decree of February 1, 1994, under which the bank became the state agent for servicing the liabilities and assets of the USSR. Thus, VEB found itself in a unique situation: it was a bank without a license from the Bank of Russia. And due to the Soviet liabilities and assets on its balance sheet, VEB did not meet the standards of the Central Bank, which thus could not grant it a license.
Then, as in 1990, it was decided to divide Vneshekonombank into a debt agency and a bank as such. In about ten years, the debt agency again might become a basis for a large state bank to be separated from it. For now the bank appearing from VEB will be merged with Roseksimbank and will proceed to serve VEB clients. Then, Roseksimbank's capital will presumably be increased to $2 billion, and as a finishing touch, it will be renamed Vneshekonombank Russia.
Private Banks
On June 11 of this year (2001), at a meeting of the Russian Union of Industrialists and Entrepreneurs (RSPP), Aleskandr Mamut, the head of MDM Bank's supervisory board, offered his program of reforming the banking system. According to it, the number of banks would have to be decreased three to four times, and the remaining banks would be allowed access to budgetary funds.
This proposal, like all previous attempts to limit the number of banks by amount of capital, did not pass. However, it reflected the main tendencies that have been inherent in the Russian banking system throughout its history.
The banks always sought to serve the richest clients. Among private clients, these were exporters, especially energy resource exporters. However, no exporter could compare with the state in financial might and servicing budgetary funds was always the banks' most cherished dream.
It would be naive to think that Aleksandr Mamut's proposal expressed the desire of large banks to get rich at the expense of the clientele of liquidated small banks, especially since the 300 banks that met the conditions proposed to RSPP accounted for more than 90% of all banking system assets. The issue was rather about limiting the circle of banks that would have access to budgetary funds.
In essence, the banks' access to budget money was one of the program's main points. None of the other methods (lending, the securities market, clearing and cash services, and plastic cards) provide the banks with enough profit for the sweeping capitalization that the Bank of Russia and the government demand of them.
Not surprisingly, the main processes in the banking system in one way or another revolve around budgetary funds. The most notable story in recent years was the redistribution of money in the nuclear industry.
Last year, MDM Bank tried to acquire Conversbank, through which the Ministry for Atomic Energy's main monetary funds were supposed to be transferred. However, the bank ran up against serious opposition from Alfa Bank, which also worked with the industry's money.
However, after MDM Bank had bought out a share issue of Conversbank, thus obtaining a controlling block of shares and Andrei Melnichenko, head of MDM Bank, became head of Conversbank as well, Aleksandr Rumyantsev replaced Evgeny Adamov as head of the Ministry for Atomic Energy. Relations between MDM Bank and the Ministry cooled, while at the shareholders' meeting an open scandal broke out when some shareholders demanded the opportunity to vote again in order to block the merger of Conversbank and MDM Bank. The outcome of the meeting was protested in court. However, on October 11, 12 extraordinary meetings of Conversbank's shareholders were conducted at once, of which MDM Bank organized 11. Afterwards, the confrontation moved to a phase of trench warfare.
A slightly lesser scandal broke out this year around the financial flow of the State Customs Committee (GTK). Usually, customs payments to the treasury are transferred from banks. In order to simplify the procedure, a system of special charge cards was devised by Interros Group structures. Any bank could issue these cards after signing an agreement with the Customs Card company; but this company itself belonged to Interros Group structures, which displeased their competitors.
In February of this year, representatives of Customs Card company met with the major Russian banks, but no agreement was reached. In March, a letter was sent by Alfa Bank, the International Industrial Bank (MPB), and Promstroibank of St. Petersburg to Mikhail Vanin, the head of the GTK, claiming that unfair competition had been allowed in the process of creating the company. As the letter did not produce the expected reaction, Duma deputy Rifat Shakirov wrote a very similar letter in April, in which entire paragraphs coincided word for word with the bankers' letter. As a result, the Prosecutor General's Office forced the GTK to halt Customs Card's operations. However, the shutdown did not last long and the system started functioning again, while the struggle around it has subsided. However, there is no doubt that state financial flows will remain the most frequent cause of banking wars for a long time to come.
by
Maksim Builov
All the Article in Russian as of Dec. 11, 2001
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