Bank of Russia wants fewer banks

Russia’s Central Bank is going to struggle with commercoal banks that have fake capitals
Russia’s Central Bank is going to struggle with commercoal banks that have fake capitals

The Central Bank of Russia is also concerned about the disproportionate number of banks in Russia. It is obvious that many of them present fake accounting on a regular basis. As a rule, such banks launder money. The Central Bank has spent a lot of its energy and efforts on the development of technologies to get rid of these fake banks and to reduce the number of banks in total.

Andrey Kozlov, the first deputy chairman of the Central Bank of Russia announced yesterday that the Bank of Russia has prepared new instructions. Kozlov added that new rules are going to be put into force by the end of the year.

Andrey Kozlov stated that the new instructions will not result in the mass withdrawal of licences from Russian banks. Furthermore, banks will have enough time to solve their problems and put their accounting in order. In addition, the Central Bank of Russia has repeatedly warned these banks about the growing control over their assets. The Central Bank called upon them to either show theeir real capital or change “bad” assets into “good” ones. At the same time, the Central Bank of Russia is studying the documents and activities of certain banks in order to find out the real size of their capital.

PRAVDA.Ru asked the deputy chairman of ROSBANK’s administration, Mikhail Alekseyev, to comment on the situation. Here is what he had to say.

“The intention of the Bank of Russia to change the methods of the calculation of bank assets can only be welcomed. It is no secret that official assets data of many commerce banks does not always correspond to the real state of things.

“Many banks have learned how to make fake capital with the help of several easy manipulations. For example, some banks give repayable loans to branch offices, and these branch offices use the funds to add to the bank’s capital. This way is really good for increasing capital in a fake way, to obtain a good rating, and to attract more clients. As a matter of fact, this is a form of fraud.

“There are many other such methods ways to increase a bank's capital, and there are a lot of banks that use them as well. The Bank of Russia calculated that about 60% of Russian banks use such schemes. This figure seems to be an optimistic one.

“The government has been turning a blind eye on this problem for too long. The issue of fake bank accounting has not been paid enough attention to, in spite of the fact that Russia has one of the largest central banks in the world.

“I think that the introduction of international standards for financial accounting in Russia could be a way out of the situation. This is to happen in the year 2004. However, the Bank of Russia decided to start the struggle with these sly banks already in 2003.

“This new measure can hardly be called a popular one. It also depends on how much time is going to be given to preparations for those novelties, and how tough the struggle will be.

“This situation is similar to what happens in Russia nowadays: supermarkets force out kiosks and booths, replacing them. The majority of Russian commerce banks are more like these kiosks than supermarkets. A lot of banks deal with money laundering; they do not offer a wide range of high-quality services, just like booths and kiosks. Supermarkets offer a bigger choice, lower prices, and better service.

“The profitability of Russian banks is not very high at the moment; it is much smaller than it was in the middle of the 1990s. That is why there are so few people who wish to invest good money in Russian banks. The total capital of the entire banking system of Russia is lower than the capital of certain foreign banks.

“It stands the reason that it is impossible to have economic progress and raise the well-being of the population without a worthy banking system. That is why the national banking systems of many countries are perceived as key links in economic structures. Foreign countries help their banks sometimes when they experience serious problems: they assist banks to increase of their assets. This is absolutely out of the question in Russia. Nobody even talks about it.

“It seems that Russian business does not want to provide a normal level of capitalization to banks. We have to say that a lot of banks have managed to work under such conditions and even earn money with minimal and sometimes negative capital. The exposure of such banks can result in their liquidation. A big shopping mall would be very good instead of countless kiosks. Yet, it will be difficult to build it.”

Prepared by Dmitry Slobodanuk PRAVDA.Ru

Translated by Dmitry Sudakov