Big Profits Attract More Foreign Banks To Russia

With interest rates at their lowest level in 40 years in the West, Russian banks are struggling to compete with their foreign counterparts in the lending market. With the Russian lending market still one of the most risky, yet most profitable in the world, more foreign capital has poured into the coffers of Russian companies than ever before. But because of their shady behavior in the aftermath of the August 1998 financial crisis, Russian banks have hardly seen any of it. The government and the Central Bank have worked tirelessly to protect the troubled banking sector from foreign competition. However, they have been powerless to stop the increasing interest-rate margins between the United States, Europe and Russia, which has meant that Russian banks have found it difficult to compete with foreign banks in the lending market. As a result, Russian banks, with comparatively small asset bases, are losing the battle for the largest and the soundest local borrowers to their foreign rivals, the St. Petersburg Times reported.