State Moves on Soviet Bank Giants

The government took further steps in reforming the country's fragile bank system Thursday, deciding to split one state-owned bank and holding out the possibility that another would be merged with it.

The government's aim is to boost the openness and of the banking sector, which is still suffering after a 1998 economic crisis, and it has drawn up a plan of action with the Central Bank.

The government decided Vneshekonombank, or VEB, which acts as a bank and as the state's agent for paying foreign debts, would have these functions split into two separate entities, the head of the bank told a news conference.

Andrei Kostin said the banking arm would be known as Vneshekonombank Russia and the debt payer as Vneshekonombank U.S.S.R., referring to its role in paying Soviet-era debts.

Russia's second-largest bank, Vneshtorgbank, or VTB, which is 99 percent owned by the Central Bank, may be merged with Vneshekonombank Russia when it is handed over to the government, Kostin said. The Central Bank is to quit VTB by next year.

The European Bank for Reconstruction and Development may also be invited to buy into VTB, he added. A government official said this week the EBRD had expressed an interest in buying 20 percent of VTB for around $300 million.

"The timeframe is fairly tight," Kostin said of the changes.

"It is planned that the main documents [setting out the changes] will be handed over to the government by Dec. 1 and the practical carrying out of the scheme will take place in the first quarter of 2002," he said.

He said VEB wanted its capital to be set at $2 billion, but that state funds would not be used. He said the bank currently had foreign exchange holdings of $3.2 billion.

He said further talks would be held with the EBRD on VTB. He said the EBRD wanted to take part in a new share issue by VTB.

"My opinion is that if Vneshtorgbank becomes state property then a merger [with VEB] is a good idea," he said.

The government wants to attract investment into the banking sector and get banks to perform their traditional role in the economy of being intermediaries in lending and borrowing, something banks in Russia fail in large measure to do.

Under the government and Central Bank plan, only the largest Russian bank, Sberbank, is set to remain in the hands of the Central Bank.

It has 63 percent of Sberbank, which holds 87 percent of household ruble deposits.