Review of Russian banks extended until 2019
Russia plans to extend a review of bank licenses for another two years, shutting down scores more banks after closing hundreds in the past four years, mostly for committing fraud or other crimes, Russia's central bank deputy governor Vasily Pozdyshev said.
Pozdyshev said that despite the large number of lenders closed so far, his team is still finding more propping up criminal activity and would need until 2019 to finish a crackdown.
The review by the central bank over the past several years has already reduced the number of banks in Russia to around 570 from 900. At that pace, Russia would end up with around 400 banks in 2019.
Pozdyshev said many of the banks already shut or now in the crosshairs of the regulator were guilty of giving out loans to fake companies or stealing depositors' money. Others support a shadow economy for goods and services bought and sold outside of official, taxable channels.
"Our work to clean up the banking system is sometimes much more like the work of a financial investigator, an investigator of financial crimes, than the work of a modern banking regulator, which checks whether a bank is sufficiently capitalized or not," Pozdyshev told Reuters.
Many banks are "Potemkin enterprises," Pozdyshev said, a reference to fake villages which nobleman Grigory Potemkin put up in the 18th century to impress Empress Catherine the Great.
The head of the Regional Banking Association, the chairman of the Duma Committee on Economic Policy, Innovation and Entrepreneurship Development, Anatoly Aksakov, speaking with a correspondent of Vestnik Kavkaza, noted that rehabilitation of the banking system will rid it of lawbreakers and ineffective employees. "In fact, this process will not be stopped completely after 2-3 years, it will be permanent. Historically, we have a sick banking system, there are certain metastases, and the Central Bank is removing its diseased parts," he said.
In this regard, Anatoly Aksakov advised individuals and legal entities to choose the most reliable banks. "The Central Bank should create a mechanism, according to which there will be only reliable and stable banks on the market," the head of the Regional Banking Association, the chairman of the Duma Committee on Economic Policy, Innovation and Entrepreneurship Development stressed.
Advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house, economist Sergey Hestanov, pointed out that the Russian banking sector is extremely uneven in terms of assets. "About 95% of total assets are concentrated in the 30 largest banks. This is why even a significant reduction in their number changes nothing from the point of view of the majority of potential customers. The complete disappearance of about 500 banks will lead to the reduction of the banking system's assets only by 5%. Reports on the review of the banking system make common people scare, but the process has almost no real impact on business and citizens," he noted.
The expert recalled the reasons why there were so many "bad" banks in Russia. "The fact is that in the early 1990s, banking licenses were very cheap. This led to the fact that many large enterprises established their own banks. By the way, the current wave of reduction of banks was not the first: the first one was in 1996, then in 1998 and 2004," Sergey Hestanov said.
At the same time, according to him, the number of "bad" banks will not grow in the future. "In 2019, the campaign is unlikely to end, the term of 3-4 years looks more realistic. But capital requirements for newly established banks are constantly growing, therefore, it will be much more difficult to establish a "bad "bank," the economist expects.
The central bank had to plug a hole of around 600 billion roubles ($10 billion) in the balance sheets of the roughly 100 banks whose licenses it withdrew last year. Among the common criminal schemes the central bank uncovered were: lending to companies with no real business, fictitious loans to individuals and fraud involving tradable securities.