Commentary: A New Central Banker Could Revive Russia's Banks
It's one of Russia's greatest scandals--and an untapped opportunity. Every day, thousands of citizens plunk savings into accounts at the 21,000 branches of Sberbank, the state-controlled commercial bank that holds 90% of all ruble deposits. But little of the money comes back to the community in the form of mortgages, auto loans, or credits to small-businesses. Most Sberbank loans are offered at below-inflation rates to politically well-connected conglomerates in Moscow, says Roland Nash, head of research at Moscow brokerage Renaissance Capital. With this kind of suction-hose credit system, it is no wonder that post-Soviet Russia-- outside of Moscow, St. Petersburg, and a few provincial hubs--remains an economic wasteland.
But change may be coming. On Mar. 15, Russian President Vladimir V. Putin forced the resignation of Central Bank Chairman Viktor Gerashchenko, the Soviet-era baron of Russia's cronyism-ridden banking system. His empire included Sberbank, 63% owned by the Central Bank, with $19 billion in assets.
In his place, Putin has installed the promising if not well known Deputy Finance Minister, Sergei Ignatiev. Brought into government in the early 1990s by Yegor Gaidar, Boris Yeltsin's liberal Prime Minister, Ignatiev is a 54-year-old economist with a reputation for honesty, a belief in competitive markets, and the nerdy, bespectacled visage of an Alan Greenspan. His appointment is a clear signal for reform--much like the message the President sent last year in ousting another Soviet-era bull, Gazprom (OGZPF ) CEO Rem Vyakhirev.
So what should Ignatiev do? First, move fast. There's no time to waste. After growth rates of 9% in 2000 and 5% last year, the Russian economy, with oil prices sagging, will be lucky to expand by 3% this year. Gerashchenko was more interested in preserving Sberbank's monopoly than in creating a competitive and healthy banking sector. As a result, Russia's banks supply a paltry 3% of the nation's annual investment capital. The dearth of lending could slowly choke off any chance for a revival of rapid growth.
Next, Ignatiev must turn Sberbank into an honest-to-God bank--with publicly available lending criteria. "Nobody knows why they are giving loans, to whom they are giving them, and at what price," says one Sberbank director, Hermitage Capital Management's Vadim Kleiner, who represents minority shareholders. Sberbank insists, however, that "the bank is meeting all requirements [for] providing information on the bank's activities."
Once the rules are clear, Sberbank should shift the pattern of its lending. First, it should curtail loans to politically connected clients. Then, it should redirect some of its $7.6 billion portfolio in government securities into community lending. Sberbank's small-business loan portfolio could be expanded from a current monthly level of $8 million to $50 million, says Elizabeth Wallace, director of the European Bank for Reconstruction & Development's small-business department.
The other item on Ignatiev's to-do list should be ending Sberbank's exclusive right to offer government-backed deposit insurance. Why shouldn't all properly supervised and capitalized Russian banks have this privilege as they compete for scarce funds?
Likewise, tight restrictions on foreign-bank operations in Russia should be eased--a step Russia must take anyway if it wants to enter the World Trade Organization, as Putin advocates. "I don't think we should expect any big change in lending policies as long as there is no access to alternative sources of credit, such as foreign banks," says Sergei Tolmachev, a former major who runs a real-estate consulting firm in Samara. Like most small-business operators, Tolmachev can finance his company only through retained earnings and loans from friends or family.
It's time to give entrepreneurs like Tolmachev a break. Ignatiev told legislators on Mar. 20 that he plans to pursue any changes with caution. Let's hope those are the words of a careful operator, not a timid soul. With Putin behind him, "he can do whatever he likes," notes Kleiner. The dysfunctional banking sector represents post-Soviet Russia's last great reform project. Sally forth, Mr. Ignatiev.
By Paul Starobin