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. Last Updated: 07/27/2016

Banks Fear Higher Capital Requirements

Russian commercial banks have protested a decision by the Central Bank to increase the minimum capital requirement by 20 times, claiming it will hurt agricultural and remote regions.

The new requirements were announced by the chairman of the Central Bank, Viktor Gerashchenko, in a telegram issued Jan. 6. The measure raised the minimum capital requirement for banks to 100 million rubles from the current level of 5 million rubles.

Mikhail Bazarya, director of the banking division of the Russian Bankers Association with over 1, 400 member banks, said the new rules would affect 80 percent of Russia's commercial banks, most of them serving smaller regions or the agricultural sector.

He said the association had protested to the Central Bank. "It's a serious socio-economic problem", he said.

Existing commercial banks have been given until July 1 either to raise extra capital, or to become a branch of, or merge with, a bigger bank.

Banks that do not meet the capital requirement after July 1 will be liquidated. No new banks can be registered after Feb. 1 unless they have 100 million rubles of capital.

The only exception is that "credit institutions" which service only legal entities and not individuals will have a lower limit of 50 million rubles.

A Central Bank spokesman declined to comment on the new measure.

Bazarya said the Central Bank was motivated by a Soviet-era concern with centralization. It took the attitude that it was easier to deal with bigger banks and that the stiffer capital requirements would make it easier to supervise commercial banks.

But he said this ignored the fact that many parts of Russia outside of Moscow and Petersburg were dependent on small banks. He said the new rules would decimate banks serving people in remote areas and small industries.

They would find it difficult to attract sufficient capital to meet the higher requirements.

Amalgamating with big city banks would defeat the purpose of having small banks since the banks would act in the interests of the more powerful big city partners, Bazarya said.

In late December, Valeriyan Kulikov, the deputy director of the Central Bank, proposed a return to the centralized banking system with massive state financing of industry. In a speech before a council of industrialists, Kulikov reportedly proposed a return to the large state banking system that existed during Soviet times to support industry.