Russia's top bankers in firing line

Russia’s banking regulator is seeking to ensure that the country’s top managers work more efficiently. The Central Bank of Russia (CBR) wants to link their bonuses to their employer’s financial health.

“Bankers incurring huge losses or working with risks significantly larger than standard ones, shouldn’t just retire in the Cote d’Azur,” said Mikhail Sukhov, deputy chairman of the CBR.

Along with such financial indicators as capitalization and debt burden, reward systems will also become a factor deciding a lender’s rating. Thus, a bank’s remuneration system will help determine government control over the institution, as well as its access to CBR funds.

And to challenge top Russian bankers further, bonuses should become dominant in a top employee’s total annual revenue, according to Sukhov. That’s “to make the material welfare of a bank’s head and its board of directors depend first of all on its financial results,” he said.

Some experts fear, however, that the good initiative might be stifled by Russian reality. In response to the CBR’s proposal, Russian bankers may simply create a roundabout method to escape it. Downgrading the very top managers in official documents could become one of the possible options.

As part of the move to make top Russian managers more alert, Russia’s Deposit Insurance Agency also insisted that so-called “golden parachutes” should not be paid to departing executives if their company has filed for bankruptcy. The ex-managers would have to wait till all the company’s debts are paid off before getting their good-bye bonuses.

All this comes after RIA-Analytica said last week that bonuses to top Russian banking managers have returned to pre-crisis levels. Most banks increased payments to top executives by an average of 40%, with VTB bank lifting them by almost 350%, from $5.8 million in 2010 to $20.2 million in 2011. The total profit of Russian banking in 2011 was around $26.6 billion, according to the RIA-Analytica report.

In fact, Russian banking is already experiencing a huge change in the way it works, Angus Campbell, Head of Sales from London Capital Group, told Business RT. Investment banking, for example, has already seen a huge job loss, as well as increased regulations. Risks are much more considered, which has allowed to significantly cut them, he said.

“As long as they [the banks] are safer, that could be a good thing,” Campbell concluded.