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Banking in Russia

Dmitry Medvedev visits a center of municipal services in Moscow 05/26/2011

The Russian banking sector includes over 900 banks, but is dominated by state-owned giants Sberbank and VTB, and regulator the Russian Central Bank.

Russia’s biggest banks by asset are: Sberbank, VTB, Gazprombank, Rosselkhozbank, Bank of Moscow, VTB 24, Alfabank, Unicredit Bank, Raiffeisenbank and Promsvyazbank.

In late May 2011 the Central Bank predicted that the number of banks registered in Russia would fall by up to 20 banks by the end of the year. 944 banks currently operate in Russia. The bank is basing this prediction on the strong likelihood of mergers in the banking sector and a hike in capital requirements to 180 million rubles, due to come into effect on January 1 2012. The Central Bank estimates that 164 of the countries banks would currently fail to meet that requirement. 

Russia’s banking sector developed rapidly in the second half of the 19th century, but was nationalized following the October Revolution, to create the three large banks which would last throughout the Soviet period: The Soviet State Bank; Vneshtorgbank; and Stroybank. Commercial banks were banned under communism, and none operated in the Soviet Union until 1988, when the Patent Cooperative Bank opened in Leningrad (now St. Petersburg). This marked the beginning of a huge resurgence of commercial banking, and when the Soviet Union collapsed this trend continued, as the ensuing uncertainty led to an explosion of unstable and sometimes criminal banks. By 1997 there were over 2,000 banks operating in the Russian Federation.  

The market changed significantly with the crash of 1998, when Russia’s oil-based economy was hit hard by declining international commodity prices. The situation was compounded by the cost of the First Chechen War, the fiscal deficit and high foreign currency to ruble exchange rates. The crisis brought down the Chernomyrdin government and swept away many of Russia’s banks, two of the more high-profile of which were Inkombank and Oneximbank. 

The majority of Russia’s banks belong to the Deposit Security Agency, which was established in 2004 to protect bank depositors from exposure to banks that are unable to pay their debts.

Foreign banks entering the Russian market have had mixed fortunes. In 2011 several foreign banks announced plans to exit Russia or scale down their business, including Morgan Stanley, Banco Santander, HSBC and Barclays. Many have attributed this to the strength of state-owned banks Sberbank and VTB, which control much of the market. Success stories include Societe Generale, UniCredit and Raiffeissenbank.

The Russian banking sector has huge potential for growth, with Credit Suisse estimating that as little as 24 percent of Russians have bank accounts. Memories of the 1998 crash are a barrier for the older generation, but younger people are a strong target audience for a range of services, from online banking to loans to buy houses and cars.

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