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31 Mar, 2008 04:34

Russian banks flooded by foreign billions

Foreign banks are flooding into Russia, despite tight regulations and lack of liquidity. Analysts say merger and acquisition activity could bring as much as $US 2 billion into Russia this year alone.

Economic and Development Minister Elvira Nabiullina says foreigners can bring healthy competition to the sector and address the shortage of long term lending.

State-run banks currently dominate the Russian market with almost 50% of banking operations. They say they are ready for competition which could force them to cut high interest rates of around 10%, closer to the G7 average of under 4%.

“Russia still has too many banks and that partly explains why Russia banking sector is still relatively weak in comparison with other leading economies. So the entrance of international financial institutions to the Russian market will lead to further consolidation of the Russian banking sector. We are ready to compete with them, we are not afraid of this,” Andrey Kostin, president of VTB Bank, said.

Launching a subsidiary bank in Russia takes up to 2 years. That’s why foreign players are keen to buy established retail banking operations.

“Currently 14 from 30 largest foreign banks are already in Russia. There are 79 banks that are more than 50% controlled by foreigners. Also there are about 10 banks to enter the Russian market this year,” Mikhail Sukhov, the director of Central Bank of Russia, said.

Despite its negotiations to join the World Trade Organisation, Finance Minister Aleksey Kudrin says Russia will retain its 50% limit on the share capital acquired by foreign banks.