Publication: Monitor Volume: 2 Issue: 70

The president of the Association of Russian Banks, Sergei Yegorov, told the association’s congress in Moscow on Monday that the Russian banking system has been in serious crisis since the middle of last year. (Financial Times, April 9; see also the article by Yegorov in Finansovye izvestiya, April 5) Yegorov said one in five of Russia’s 2,285 commercial banks — the quintessential form of new Russian business — has already gone bust or is in serious financial trouble. The imminent demise of a large number of Russian comercial banks has been predicted since 1991. Russia is not alone in this: almost all the former Communist countries of Central and Eastern Europe have experienced banking collapses during the course of market reform and, in general, the earlier the crisis has struck, the less damaging its after-effects have turned out to be. The problem is that Russia simply has too many commercial banks and that too many of them are weak and riddled with bad debts. Western bankers predict that the number of banks is likely to fall by more than half over the next couple of years.

First set up in 1988 by the Komsomol, Russia’s independent banks have proved highly profitable. They have been mainly associated with lucrative short-term financial operations, not with taking deposits from the public or lending to households or businesses. As a result, they are the target of much resentment and attack; they have also attracted racketeers and many are now inextricably linked with organized crime.