Strong growth in the domestic economy has helped lift Russian banks, which saw deposits and loans more than doubling in the two years to the end of 2002. Many leading private-sector banks now have more focused and professional management teams, including foreign executives in key posts. Retail banking is growing, while consumer and mortgage lending are showing signs of expansion, in contrast to the banks’ dependence on proprietary trading in the period leading up to the 1998 financial crisis.
“Nonetheless, this optimistic scenario must be tempered by a cold-eyed view of the major weaknesses of the Russian banking system,” says Scott Bugie, credit analyst at Standard & Poor’s, who co-wrote the report. The new report points to the persistence of the powerful financial industrial group (FIG) that peculiarly Russian combination of banking and industrial interests which encourages high-risk lending to group companies and whose accounts defy scrutiny by outsiders.
Banks still hold large concentrations of business with single clients, the entrenched position of the state-owned savings bank Sberbank skews the whole banking market, and the regulatory watchdogs are not showing their teeth. Standard & Poor’s focuses on a few major issues that will drive the credit quality of Russian banks in 2003 and beyond.
“The establishment of a viable deposit insurance system will be key in reinforcing still-fragile consumer confidence in banks, and the success of the new banking authorities in implementing new regulations will be crucial in reining in risky practices in the sector,” says Ekaterina Trofimova, credit analyst and a co-author of the report.
Bank Industry Risk Analysis: Russia is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com. The report can also be found on Standard & Poor’s website at www.standardandpoors.com.