MOSCOW. (RIA Novosti economic commentator Nina Kulikova.) Russian President Vladimir Putin supported the banking community's desire to restrict the activities of foreign bank branches in the country at a meeting with Russian bankers in Novosibirsk yesterday.
"I want to confirm that the Russian government agrees with our banking community that activities of foreign bank branches in Russia should today be restricted or, in fact, prohibited," Putin said. Thus, he publicly endorsed the stance adopted by many bankers and experts who had repeatedly spoken against admitting them into the country.
The problem of admitting foreigners to Russian financial markets appeared as the country began integrating in the global economy. It remains one of the main obstacles in Russia's WTO accession talks. Foreign partners demand that Russia allow branches to work in the country, but the position of Russian negotiators is firm. The country cannot afford it, because such changes may cause severe problems for its underdeveloped banking system.
At present, Russian legislation prohibits foreign banks to open branches in the country. But they may set up subsidiaries, for example, a joint-stock company set up under Russian law with a certain share of foreign capital. This is the plan used by such international giants as Citibank, Raiffeisen Bank and others. A subsidiary functions in compliance with Russian legislation as a separate legal entity and must abide by the Russian Central Bank's instructions. Its operations are included in Russia's balance of payments. The Central Bank can supervise its activities and impose sanctions in case of violations.
As to branches, the Central Bank has fewer possibilities to control them. A branch is a division of its parent bank, its organizational part. So it first of all abides by the parent bank and by the laws of its country of origin. In this case, any operations between a branch and its parent company are operations within one structure that cannot be fully controlled by Russian financial authorities.
In fact, a branch operating in the Russian market is the same as a parent bank operating here. Foreign banks have a lot more resources than their Russian competitors. Some of them have assets that exceed the entire Russian banking system by twice or more, which makes it impossible for Russian banks to compete with them.
At the same time, the president said that restrictions were necessary not only because of competition issues, but also because of the impossibility to monitor capital flows in modern conditions, while there is a need to fight terrorism and money laundering.
Some experts say that admission of foreign branches could benefit ordinary Russian consumers, as they would get a wider range of financial services and lower interests on loans. However, Nikolai Kashcheyev of Vneshtorgbank says that this is a macroeconomic problem that will affect not only ordinary people. "What is worse, to take a loan with an interest 0.5% higher than from foreigners or to later find themselves in a large crisis because of the collapse of narrow financial markets, sharp fluctuations of exchange rates, etc.?" he says. Russia's foreign exchange is estimated at $2 billion daily. What is $2 billion for several international banks whose assets exceed $500 billion? They can do everything they want to this market, he explains.
Moreover, non-residents already have significant influence on many processes in the Russian financial markets. Having far more experience and progressive technologies, foreign banks subsidiaries are slowly but steadily seizing their share of the Russian market. And no one stops them. The share of banks with foreign capital is growing, especially in the retail sector. They are also quite successful in providing loans to Russian companies. Moreover, they have similar conditions with Russian banks, but have a competitive advantage in the form of experience accumulated in global markets. Evidently, it is not in the interests of the Russian financial market to give them additional preferences.
At the same time, Russian authorities are pursuing policies to attract foreign investment in the economy and use every occasion to emphasize that the ban on foreign bank branches does not mean stopping the influx of foreign money in the country.
