Evolution of the Russian Banking System
Lapidus, Mikhail, Golovin, Yuri, Business Credit
In the former Soviet Union the entire banking system, being state owned, exemplified the totalitarian policy of the state. The main purpose of the banking system consisted of control and supervision over the implementation of government goals and over the execution of a single financial discipline.
This situation persisted until the mid-1980s. In that period it became evident that the Soviet Union had fallen behind Western countries in all areas of the economy except the munitions industry. The economy was marked by deficiencies of food and consumer goods. Furthermore, corruption and misappropriations of wealth became widely spread in all societal sects.
The restructuring of economic relations required the creation of a new banking system. It was built within two years. It was a unique case in world economic practice and within a short time, the former Soviet Union orchestrated the creation of a new banking system composed of two divisions. Its upper division consists of a single central emission center and the second division encompasses more than 1500 commercial banks independent of government authority. Such revolutionary changes had never happened in the world history and will hardly happen again in the future.
Certainly according to the world standard quantitative criteria, the Russian banking system is backward in comparison to those of the leading nations. First of all, most Russian banks are smaller than foreign ones in terms of their financial assets. But, an intense process of banking capital concentration is currently under way. The integration of the largest American and Western European banks into the Russian banking system is likewise essential to this process.
The Russian banking system, with the involvement of foreign banks, is able to support the functioning of the new national economy based on market principles and to become the basis for its dynamic growth. The system is certainly reliable; it is represented not only in large cities, but also covers the most remote regions of the country. The range and quality of the provided services fully match the current international standards.
The concentration of the banking capital is attested by the fact that the top 250 banks arranged by the size of their assets as of May 1, 1998 held 89.6 percent of all bank assets. The remaining 1400 banks held only 10.4 percent of the aggregate assets of Russian commercial banks.
In 1994, the share of banks with authorized capital less than one million rubles was 90.7 percent and there was not a single bank with a capital of 20 million rubles or more. In 1998, the share of the former group went down to 18.4 percent and the number of banks with a capital more than 20 million rubles was 17 percent. Among them, 12 percent had capital more than 30 million rubles.
The support of foreign capital, whose share is verging to 10 percent of the aggregate capital of Russian banks, is another significant influence on the evolution of Russian commercial banks.
Currently, there are 145 banks in Russia with shareholding interest of foreign banks, including 16 banks with 100 percent foreign capital. Among them are the subsidiaries of such giants as American Citibank, Republic National Bank of New York, Chase Manhattan Bank International, two French banks, two German banks, a Swiss bank, an Austrian bank, a Chinese bank, a Turkish bank and others.
More than 20 foreign banks have signed Letters of Intent to set up subsidiaries in the near future. Among them are the banks that belong to the elite of the world bank community - Bank of America, J.P. Morgan Deutsche Band AG and others.
More than 50 percent of all bank assets in the country are banks that work with foreign capital.
The volume of foreign investments in the capital of Russian banks in 1997, in real terms, increased 1.7 times and amounted to 18846 million rubles as of January 1, 1998 in absolute terms - or 4. …