The transformation of Russian banking Bachelor Paper I

Submitted by: Alina Milovanova

Matriculation No.: 1210633863

at Bachelor Programme

Business Consultancy International

(International Finance)

Supervisor: Dr. (FH) Ciaran Cassidy

Wiener Neustadt, 7th November 2014

D eclaration of Integrity

I hereby confirm,

1. that I have written the Bachelor's thesis at hand independently, that I have not used any sources or materials other than those stated, nor availed myself any unauthorized resources, and

2. that I have not submitted this Bachelor's thesis in any form as an examination paper before, neither in this country, nor abroad.

3. that the electronic copy of this Bachelor's thesis and the printed version are identical.

Wiener Neustadt, ____________________________ ________________________________

Date Signature

Contents

Abstract 4

1. Introduction 5

1.1. Research Question 5

1.2. Structure of the paper and the research method 5

2. A brief history of the Russian banking in a centrally-planned economy 6

2.1. USSR banking within the period of 1917-1932 6

2.2. Economic reforms in 1960 and Kosygin’s reform process 7

2.3. The Gosbank of the USSR 8

2.4. Three major banks that determined the Soviet banking system 9

2.5. The USSR banks abroad 10

2.6. Short, long and other forms of credit 10

2.7. Short summary 12

3. Transition stage 13

3.1. Russian early government supervision 14

3.2. The new developments in the Russian banking during the period of 1991-1999 14

3.3. The Licensing 15

3.4. Banking inspection and the assessment of reliability 16

3.5. Asset management approach 17

3.6. The view on the Commercial banking after the collapse of the USSR 18

3.7. Concluding remarks 18

4. Russian Banking today: Current structure and major problems 20

4.1. What has been left as a result of the transition stage? 20

4.2. The determinants of the modern Russian banking 20

4.3. The current situation and issues 24

4.4. IFRS in Russia 26

4.5. Short summary 26

5. Future Outlook 28

5.1. Moody’s view 28

5.2. Basel Core Principles for effective banking supervision 28

5.3. The Economic condition 29

6. Summary of findings and conclusion 31

7. Bibliography 34

8. List of abbreviations 37

9. List of figures, tables, graphs 38

Abstract

The Russian Banking system experienced severe changes before it received its modern structure. It becomes an interesting phenomenon to see how a former centrally-planned country succeeded in transforming its economy into a market–based establishment within the environment of a quick political change. This study examines the major changes of the system of Russian banks, and also investigates the specifics of the reform process. The developments in Russian banking can aptly illustrate the links between the post-soviet government supervision and the very complex nature of the transformation stage. The future of Russian baking can obviously find its development in history. Therefore, a great amount of historical literature was used to identify what types of changes were brought to the system of Russian banks, how is this system structured nowadays and which estimates could be attributable to the future of Russian banking. The historical research helped to show that after the collapse of the USSR, the new Russian banking system started to develop according to Western standards. The modern structure of Russian banks was established during the “Process of Transformation”. Given the current political situation in 2014, the future outlook does not provide a positive evaluation to the system of Russian banks as well as to the country’s economy.

Keywords: the banking system of the USSR, the economics of transition, the modern Russian banking, banking issues.