Professor of School of Economy and coordinator of research of programs for International Institute of Economics and Finance Aleksei Belyaev is speaking on the banking system in Russia.
ussian banking system has existed for only 10 years and has had a limited set of operation to make profit. When inflation was high, the main source of profit were long-term trade and commercial loans, then the banks benefited from the state securities, after that they made money from companies’ contra deals. In the recent years banks expanded their services a little, they started giving loans to people buying some expensive items at stores and to some industrial enterprises, the operation on financial and currency markets are bringing profit as well.
However, from the long-term perspective, the situation is far from perfect. Our banking system still does not occupy the niche it should have in Russian economy: it does not convert national savings into investments. Big money is invested into economy beyond the banking system, through other sources, and the investments are made not by banks, but some other organizations, in particular, big industrial enterprises. Both private and state companies invest into economy beyond the banks. For example, Gazprom invested more than $8 billion from its revenues in 2003.
Meanwhile, there have always been savings in Russia: in the 90s every year $20 - $25 billion was taken out of the country. In the recent year, this amount was reduced up to $10 - $15 billion. Meanwhile, even today when the banks are booming, companies and private individuals have bank accounts for $50 billions in total. The savings from Russian economy are directed not in the banking system, but somewhere else, either out of the country or are invested in some projects and objects, such as real estate.
This demonstrates that Russian banks exist on their own and for themselves.
I think 1,500 banks are too many for Russia. They say that if 1,000 banks die, nobody will see this except for the banks’ owners and employees. This statement is only partly fair, regional small banks also occupy their niche and are often more responsible about their partners and clients. No people would benefit from their death. There is another problem: the lack of transparency, and for this reason it has hard to distinguish a good and trustworthy bank from a bad one. This is the main problem.
I have no feeling that the banking system annual 40-50 percent growth which started after 1998 – 2000, is stable. As good banks are hardly distinguished from bad banks, investors and customers perceive both the types of banks in the same way. When the market in this way encourages the operations of the bad bank, this bank continues its activity with growing assets and loans. When this bank ends up in bankruptcy, its investors and customers transfer their bad attitude to the other banks as well, they stop using banks for their operations and provoke a new bank crisis. Our economy has been captured in this magic circle, and only radical and painful banking reform can break this circle.
In my opinion, it would be reasonable for Russia to have 10 big and really reliable banks which could operate on a national level and serve big companies, credit long-term projects, borrow money under a fixed interest rate. Stable small banks should occupy the niche where it is not profitable for big banks to work – for example, in the regions, there should be no overlapping operations between the two types of the banks, all the rest of Russian banks should die out. Only this system will reduce the possibility of banking crisis in Russia.