800 Banks Clear First Hurdle
www.themoscowtimes.com - By Alex Fak - Staff Writer - March 26, 2005
With the lion's share of the country's retail deposits guaranteed against default, market watchers are now waiting for the Central Bank to take steps to protect lenders from going bust to begin with.
This week the Central Bank announced that it had accepted 824 banks, holding 98 percent of all private deposits, into its deposit insurance scheme, which guarantees up to 100,000 rubles ($3,600) per account. The 300-odd banks that were rejected have until April 27 to appeal -- or face the prospect of not being able to attract any more private deposits.
Deposit insurance was the first step in the long-delayed banking reform. But the Central Bank's scheme does little to strengthen banks themselves. A lack of transparency makes many banks appear more stable than they actually are.
The original aim of the insurance scheme was twofold: to re-establish trust in the country's tarnished banking system and to weed out the most unstable banks through a process of inspections.
According to the first criterion, the system is already a moderate success, analysts said. Confidence has risen as the Central Bank has published weekly lists of private banks accepted into the deposit scheme.
Retail deposits soared 30 percent last year to breach the 2 trillion ruble mark ($72 billion), partly as a result of growing incomes, but also because more Russians entrusted banks with more of their wealth. Though this compares with a 47 percent increase in deposits in 2003, the rise is impressive considering a short-lived but serious crisis in confidence last summer, when the Central Bank recalled the licenses of several institutions.
The share of deposits in state-owned giant Sberbank also continues to fall, not least because the Soviet-era savings bank lost full state deposit guarantees in October.
Nevertheless, after seeing their savings wiped out several times in the post-Soviet era, Russians still regard the banking system with a measure of skepticism.
"As a share of GDP, retail deposits remain stuck under 12 percent, having moved little in 2004," said Andrew Keeley, a banking analyst at Renaissance Capital. In the West, by comparison, the ratio of retail deposits to gross domestic product tends to be more than 50 percent.
"The [Central Bank] has so far handled [deposit insurance] well; the key now is marketing it effectively to Russia's savers," Keeley said.
The weeding-out process has been slow, however, as only 18 faulty banks lost their licenses in the Central Bank's review.
Yet Natalya Orlova, a banking analyst at Alfa Bank, said that skeptics had been expecting the Central Bank's sieve to be even leakier, so the 300 initial rejections are "still a good sign." Forcing banks to publish their financials to international accounting standards would make the system significantly more transparent, Orlova said.
While the government has demanded that banks submit statements for 2004 along international lines, they have not been made public, Orlova said, and it is unclear whether banks will be required to continue doing so.
Moreover, the statements do not show the source of a bank's capital, said Yekaterina Trofimova, CIS bank analyst at Standard & Poor.
This is a real problem in a country where -- according to the authorities -- one out of every five banks states fictitious capital, generated by lending money to owners and then receiving it back as deposits.
Russian accounting standards also allow for the exaggeration of earnings, partly by discounting losses, Trofimova said. As of yet, there is no time frame to move banks to filing reports that strictly adhere to international reporting standards.