A Russian Journey

Article excerpt

Private business banking emerges in big-hearted city on the Volga

Editor's Note: Community banker Salvatore Marranca, nominated as ICBA secretary, and bank consultant Paul L. Simoff recently traveled to Samara, Russia, to teach about U.S. banking practices as part of a pro fessional exchange program. The following article is an account of their week-long trip last fall. To share your views and experiences in Independent Banker, contact Nicole Swann at nicole_swann@icba.org.

Russia is a land of stereotypes and surprises-absolutes and enigmas. The vastness of its land stretches from Eastern Europe to the Pacific, a distance of nearly 5,000 miles, or about twice the distance from New York City to Los Angeles. The second largest country in the world, while easy to locate on a map, is painstakingly difficult to visit. Visa applications and background checks must be completed. Air service is somewhat irregular if you travel to anywhere but Moscow. And it takes seemingly forever to get there! From Frankfort to Samara, Russia, our final destination, the flight time is four hours. That is on top of an eight-hour flight to Frankfort from the United States, not accounting for layover time, which was another nine hours.

We were guests of the Central Russian Bankers Association arranged by the Financial Services Volunteer Corps. FSVC is a nonprofit association headquartered in New York City whose mission is to assist former Eastern bloc nations with developing Western banking structures and practices. We were asked to conduct seminars on designing new banking products and services. In addition, private consultations were arranged with Russian bankers to assist them with addressing particular problems and challenges within their own financial institutions.

The Russian banking system is not too dissimilar from those of other former communist states. The stereotype is that all the banks are either corrupt, insolvent or both; and that most are owned and operated by either the Russian government or Mafia. In fact, there is a fairly substantial private banking sector. Russian banks tend to be small (under $100 million in total assets) and are often owned by individuals and companies (similar to industrial banks that have all but disappeared in the United States).

Most of the banks in Russia cater to business clientele. Their customer bases may be comprised of no more than a handful of companies. The consumer banking sector, with its checking and savings accounts, car loans, resi- dential mortgages and other personal financial services, such as ATMs and credit cards, is virtually nonexistent. (ATMs and credit cards are used almost exclusively by foreign business travelers.)

Russian banks have an especially difficult time attracting deposits, due in part to the country's poor economy, lack of a deposit insurance system, inadequate regulatory oversight, distrust of centralized banking authorities and sometimes unenforceable banking statutes.

A sound and viable banking system is reliant upon access to and exchange of accurate financial data. Personal and corporate financial statements that meet generally accepted Western accounting standards are rarely submitted as part of the loan application process. Centralized credit reporting agencies, vitally important sources of information for Western bankers upon which loan decisions are based, are viewed as steps backward to an era of Big Brother government. Equally important, there is a substantial lack of networking among banking professionals due in part to cultural patterns that discouraged information sharing and learning.

The Russian banking system must travel a long and somewhat perilous road to attain Western standards of stability and credibility. But there is hope for its future. There is a talented pool of professionals in the banking sector, many with whom we met and consulted. They are eager to learn and willing to adopt the best practices of Western financial institutions. …