INSIDE FINANCE: Russia's Default Left Banks In Crippled State of Survival

A painful six months after "the default" have passed. For Russian banks and their clients, it is a good time to reflect on whether anything about the situation has improved even a small amount.


Unfortunately, it has served to establish that, with rare exceptions, the situation in the Russian banking system has only gotten worse. What is to blame? Of course, on the one hand, the difficult economic times and the continuing menace of default on internal debts plays an extremely negative role. But is this the only problem? It seems that, after their success in halting the slide of the ruble through administrative measures, the monetary authorities have excused themselves from cleaning up the banking sphere.


One of the first such casualties became the planned establishment of the Agency for Restructuring Credit Organizations, or ARCO. The idea was far from liberal and certainly expensive, if someone really decided to take such a course. I would have preferred to see a situation where bank owners themselves would have to pay for the rehabilitation of their offspring, revealing in advance all the bad assets that most banks possess at this moment. However, nobody wants to quarrel with the banks, because the budget allocates a mere 10 billion rubles for the financing of ARCO, which right now equals a trifle more than $400 million. Is this enough for the rehabilitation of even a part of the bankingsystem? Surely not.


What other achievements have there been? There has been the provision of stabilization credits, via the old methods of supporting either friends or colleagues of the management of the Central Bank. Credits have been received either by banks that it is best not to offend - Bank of Moscow, MOST-Bank, SBS-Agro - or dear old colleagues - Vozrozhdeniye, MIB, Promstroibank. Banks such as Rossiisky Kredit or Mezhkombank, never mind their valid requests, the Central Bank has preferred to decline.


A natural reaction to the passivity of the authorities has been the active withdrawal of liquid assets from lifeless, debt-burdened structures. Recently part of SBS-Agro in Moscow changed its name to First Mutual Credit Society. SBS-Agro's creditors and depositors have yet to be fully informed about the proceedings, but I dare say the new bank is not waiting to welcome them with open arms.


It has yet to come to light, but there is talk that an underground transfer of the liquid assets left at Inkombank after the crash to the small Lanta Bank has been going on. Inkombank has continued paying salaries and it seems the bank does not strongly believe it is close to bankruptcy, a process that is supposed to be completed by March 30.


Unburdened by debts, the staff of Uneximbank has migrated to Rosbank, leaving the brave department director behind to fight a doughty rearguard battle with those creditors suddenly willing to pursue a once-untouchable oligarch.


Further examples of small-scale activity in the banking sector can be listed. But I would like to turn instead to the general instability and lack of opportunities that the banking business in Russia faces in the coming year.


Those individual depositors capable of doing so have withdrawn their money from the banks, and for the foreseeable future they will teach their children to save money by stuffing their dollars into mattresses rather than putting it in a Russian bank. Only Sberbank is excluded from such perceptions, but money is deposited in Sberbank because there is nowhere else to put it.


Russian industry, despite First Deputy Prime Minister Yury Maslyukov's assurances of stable economic growth, for the moment is unable to supply the bankers with any decent clients. Meanwhile, the market is full of bankers hunting for clients. But the banks are in reality not an attractive place to deposit money. And the revival of the state treasury bill market is an impossible task. The currency markets are surrounded by so many administrative barriers that the very thought of taking part in them is frightening.


All that remains is the market in corporate securities, or veksels. However, as practice has shown, it is impossible for the securities market to survive without World Bank credits. Therefore this market has also died.


So, do the banks have anything to operate with? It seems not. Proof of this is provided by the extraordinary growth of correspondent accounts held with the Central Bank - traditionally classified as non-performing assets.Therefore, at the current time the banking sector is going through a period of obvious and prolonged stagnation. The best possible result would allow for the preservation of a slimmer core set of banks until the outlook improves. The worst case scenario would mean the gradual extinction of all Russian banks.


Irina Yasina was a spokeswoman for the Central Bank under former chairman Sergei Dubinin.