Russian banks brace up to resist crisis wave from Europe

The global banking sector is getting increasingly anxious about its future, according to a recent survey of the industry. The survey has also shown that Russian banks are less prepared to face the economic dangers than their foreign rivals.

The survey by the think tank the Centre for the Study of Financial Innovation and the consultancy PricewaterhouseCoopers polled more than 700 people from almost 60 countries during November and December last year.

The report shows concerns about bankruptcies and nationalisations have reached their highest level in 13 years. The debt crisis in the Euro zone is considered the biggest risk, as a euro collapse would send shock waves far beyond Europe.

“Unfortunately if something is happening in Europe, we immediately catch the bug, because we are too dependent on Europe and the world economy,” says David Yakobashvili, Chairman of the Bioenergy Corporation, “but we should change our attitude and we should be innovative – as much as possible. We have such low debt compared to other countries, so many natural resources and financial resources, that we can be very attractive for business. All we need is to get rid of the administrative barriers, of corruption and improve Russia’s business environment within the next 5-7 years.”

According to the survey, Russian banks may be less prepared for a new crisis than many others across the globe.

However Ben Aris, editor-in-chief of Business New Europe, thinks Russian banks have less to fear than they might think.

“When you compare the Russian banking sector to some of the other banking sectors in the region – they can’t be compared. The Russian bank sector is so big and strong – and increasingly consolidating – and I think the prospects for it going forward are very good. The whole sector as a whole has just reported record profits for 2011. I think behind this they are feeling nervous because they are afraid of the financial meltdown in the West that would definitely spill over. As a result they are putting away cash reserves to deal with somebody else's problem – they don't actually have problems of their own.”

According to Aris, the main challenge that banks in Russia are now facing, is that the sector has suddenly become very competitive – more than ever before.

“Before the crisis you could do anything and make money. And now people have to think about their marketing, they are feeling the pressure from their competitors – both domestic and international. We have already seen a whole raft of foreign banks leave the market because it became too competitive. For the banks it’s a new mindset: of actually value added product efficiency, having to worry about costs for the first time, having to worry about profit margins being squeezed for the first time, and they need to get used to it because they've been spoiled until now. It’s been so easy to make money and banks have been money making machines.”