The Battle of the Banks

For many people in Russia foreign currency has become a part of everyday life. So too the need to keep this reliable and reputable resource in an equally reliable and reputable bank, preferably a foreign one. Are there many foreign banks in Russia? What services do they offer and who can use them?

Take a walk through Moscow’s International Trade Centre and then make the trip to No.4 Pokrovsky Boulevard and your head will be spinning from all the logos and advertisements for foreign banks. But don’t confuse a “representation” with a genuine working bank. Representations, of which here are over 100 in Russia today, merely gather information, advise clients and open accounts for Russian banks abroad.

As for working banks, there are only three: Credit Lyonnais, Bank Austria, and the Banque Nationale de Paris - Dresdner Bank in St.Petersburg. This list is often extended to include the Moscow International Bank, which is somewhat like a joint venture: 10 per cent of its basic capital belongs to foreign banks, and 40 per cent to Russia. Apart from these, seven other banks have been given a license to operate in Russia.

Foreign banks choose their clients carefully. In this they differ both from their Russian counterparts and from western industrial and commercial firms. For the time being they are not keen to advertise their activities, and there is no particular need: they have been given plenty of free advertising by Russian bankers worried that powerful foreign competitors could destroy their domestic banking system.

Competition between Russian and foreign banks has been compared to a boxing match between a featherweight beginner and Muhammed Ali. The main demand from Russian bankers is to introduce a temporary ‘offshore regime’ forbidding foreign banks to serve Russian firms and individuals.

“We need protectionist policies for some years”, say some bankers. “This question will not go away until the Central Bank and several cabinet members change their ‘pro-western’ orientation. Most European countries, the USA and Japan have at various times adopted protectionist policies. Moreover, the measures we are proposing are milder than those adopted elsewhere.”

There are people who are sharply critical of the protectionism of domestic bankers and believe that foreign competition in the banking sphere would bring definite benefits to the Russian economy: ”The ruble is an unreliable and unpredictable monetary unit... If there were enough western banks here, they would take hard-currency business from Russian commercial banks and force the latter to take the ruble seriously. Then our banks would be concerned to strengthen the ruble, rather than undermine it.”

“Furthermore, currency control by western banks would be far more reliable than that organized by any of our own.”

In the last few years Russians have accumulated substantial hard-currency sums in cash. Some trust their hard currency savings with domestic banks. For the moment there are but a few foreign banks that deal with private individuals, and in the future they tend to do business only with major investors. As for Russian firms, naturally better-off than the average individual, they can also be tempted by western reliability. If foreign banks can rid their clients of the problem of delayed and muddled payments then competing with them will be no simple matter.

But here is just one revealing comment by a Moscow businessman: “My firm is unlikely to patronize a western bank in the near future — we have ‘our own’ banker who closes his eyes to late credit repayments, inaccuracies or dubious securities, and I doubt that a foreign bank would let that pass.”

And there are other problems. For now it is hard to say how this ‘cold war’ between Russian and foreign banks will end. Perhaps protectionist measures can be avoided, so long as Russian banks can accumulate sufficient experience and strength before their western competitors begin a large-scale operation on Russian financial markets. The arrival of foreign banks in Russia is inevitable, but also valuable: they have something to teach Russians.

Compromise would seem the ideal way to avoid a financial war.