Russia is the world's ninth largest economy. Since the
collapse of communism it has experienced massive and rapid privatisation, strong economic growth and increased
foreign investment, although the state continues to be heavily involved in the
private sector. While the services sector dominates, the country remains
heavily reliant on commodities and natural resources, and in 2011 overtook
Saudi Arabia to become the world's largest oil producer.
The banking landscape is dominated by two
state-controlled giants, VTB Bank and Sberbank. Their dominance is symptomatic
of an uncompetitive marketplace, which has seen many international banks,
including HSBC, Barclays, Santander, Swedbank and Rabobank, leave Russia in
recent years after heavy and perhaps incautious investments during the economic boom.
While there are over 1,000 banks in Russia, many smaller local banks are said to be blighted by murky ownership and a lack of
transparency. The five largest banks in Russia - Sberbank, VTB, Gazprombank, Russian Agricultural Bank and Bank of
Moscow, account for 50% of assets in the sector, and Sberbank alone holds 58%
of all retail deposits.
The Central Bank of The Russian Federation, or Bank of
Russia, is the country's primary financial regulator. Its functions are
described in the Russian constitution and in Federal Law. Under Russian law,
half of the Bank of Russia's profit has to be channeled into the government's
federal budget. A key regulatory mechanism is the "On banks and banking
activity" federal law, which establishes registration procedures, and
defines the operations that banks may carry out.
The Russian financial system continues to suffer from
weak governance, including sometimes non-transparent ownership structures and
deficiencies in reporting, according to the IMF. Banking in Russia is subject to
significant regulatory requirements, although regulation has been described by Standard & Poors as being "heavily rules-based, which allows banks to circumvent the
spirit of the regulations". Well politically-connected banks may sometimes have
more influence than the regulators.
In July 2011, Bank of Moscow, the country's
fifth-largest bank, received a $14 billion bail-out, described as "the largest
bailout in modern Russian history" by the Moscow Times. Following a hostile takeover
by VTB Bank, it was discovered that nearly a third of Bank of Moscow's assets
were "problematic"- namely loans extended to companies connected to the bank's
former management. Following the bail-out, the head of supervision at the
central bank resigned.
Government policy on bank reform
The financial crisis has set back progress towards
reform and a more competitive banking system. During the financial crisis, the
Russian state spent $200 billion on a rescue plan to increase liquidity in the
banking sector and to help heavily indebted Russian firms.
The primary focus of the Russian state is on
increasing private investment in the banking sector, partly for a more
competitive sector and partly to improve the state's finances.
In March 2012, Russian President Dmitry Medvedev
ordered the state control of VTB Bank and Sberbank of Russia to be reduced to
below 50%. According to its privatization plan, the government will sell 35.5%
minus one share in VTB in the period 2011-2013, reducing its share from 75.5%
to around 40%. The government also plans to sell 25% of its shares in the
wholly state-owned Russian Agriculture Bank by 2015, and pull out entirely by
Sustainability initiatives and alternative banks
In April 2013, Bank Oktritie became the first Russian financial institution to sign up to the Equator Principles. Aside from this, few Russian banks have signed up to sustainability initiatives - Sberbank is a member of the Carbon Disclosure Project, while Vnesheconombank, the Russian Development Bank, is a signatory to the UN Global
An estimated 60 million people in Russia (42 per cent
of the population) have no access to basic financial services (World Bank).
However, over a thousand credit cooperatives are active in Russia according to
the ILO, and a system of agricultural credit
cooperatives and consumer credit cooperatives is developing rapidly.