Draft Law Reimposes Bank Restrictions

Two subcommittees of the parliament's lower house have drafted a law to reimpose restrictions on foreign banks in Russia, State Duma Deputy Pavel Medvedev said Monday.The draft law would reinstate offshore status on foreign banks licensed to operate in Russia, barring them from handling accounts for Russian citizens or enterprises until Jan. 1, 1996. It is scheduled to reach the full Duma for a first reading July 6.The restrictions have been a point of contention since they were first imposed by President Boris Yeltsin last November under pressure from Russian banks fearing foreign competition. Another Yeltsin decree signed June 10 lifted the restrictions effectively for six European and one Chinese bank, but not for five other foreign banks, including the United States' Chase Manhattan and Citibank.The new draft law was approved last week by the banking legislation subcommittee, headed by Medvedev, and the subcommittee on laws concerning the Central Bank, headed by ex-Finance Minister Boris Fyodorov. Before the Duma considers the draft, the subcommittees will hear comments from the relevant ministries, banks and the Central Bank, Medvedev said. The Duma generally takes no less than a month to approve a draft, after which it must be ratified by the upper house, the Federation Council.Medvedev said that although he personally opposed the restrictions, almost all members of the two subcommittees had backed the draft."Measured penetration of foreign banks would help the Russian banking system get more civilized," Medvedev said. "Also our bankers are becoming more respectable, they are beginning to open up in foreign markets, and they could suffer from a reaction to the restrictions."Alexei Sitnin, the press spokesman for the Central Bank, agreed with Medvedev. "The fact that only one Russia bank, Inkombank, has been able to open a branch abroad is also due to this situation," he said.Medvedev said he believed Russian banks would be sufficiently protected if a limit was set on foreign banks' capital. Regulations that have applied to foreign banks in Russia since April 1993 limit them to 12 percent of the total capital of all Russian banks.The Association of Russian Banks, which groups over one third of Russia's 2,200 commercial banks, has asked that the restrictions stay, reasoning that domestic banks are not prepared to face Western competition.Only seven percent of Russian banks pass the Central Bank's minimum charter capital requirement of 2 billion rubles ($1 million), according to official data.