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. Last Updated: 07/27/2016

New Curbs on Western Banks

An agreement between Russia and the European Community intended to lower trade barriers will actually impose further restrictions on Western European banks in Russia, a government spokesman said Thursday.


Vladimir Kuznetsov, spokesman for Deputy Prime Minister Alexander Shokhin, said a top EC negotiator had approved a five-year protectionist policy limiting foreign bank operations in Russia. The restrictions would go into effect with the Trade and Cooperation Agreement, for which President Boris Yeltsin is expected to sign a framework agreement during Dec. 9 his visit to Brussels.


The restrictions would limit foreign banks to accounts of over 100, 000 ecu ($115, 000) and would exclude them from trading in shares and privatization vouchers, Kuznetsov said. The curbs would only apply to banks that received licenses after the agreement went into effect. Neither the 10 wholly foreign banks already licensed to do business in Russia nor joint-venture banks with at least 30 percent Russian investment would be affected.


In return for the EC's agreement to the restrictions, Russia promises to protect European banks which have already opened branches here from any further curbs for five years.


"If we do not impose limitations, Western banks will get ahead of Russian banks with their superior technology", Shokhin told The Moscow Times in St. Petersburg. "Russian bankers want foreign banks to operate in an offshore regime. We have proposed a compromise".


The restrictions could hinder some banks planning to set up shop in Russia but will not affect their main business, according to Nataly Hlady, Moscow representative of Credit Lyonnais, the first foreign bank to open a branch with a full banking license in Russia.


Credit Lyonnais handles accounts of less than the 100, 000 ecu stipulated in the expected restrictions, but has no plans to open small private accounts for another few years, she said.


While some banks had hoped to open small accounts, Hlady said, few would be interested in trading the shares and securities the new restrictions would reserve for Russian banks.


Russian banks have lobbied hard against competition from foreign banks, which they feel will push them out of the market. Sergei Yegorov, president of the powerful Association of Russian Banks, said the restrictions are needed for a few years to keep wealthy foreign banks from stealing fledgling Russian bank's customers.


"The Russian banking system is still very weak", he said. "We need to give it a chance to get off the ground".


Hlady countered that although Russian banks have good reason to fear foreign competition, they also have some advantages in the Russian market. Russian banks, for instance, offer high interest rates on dollar accounts that Western banks, using Western rates, cannot offer.


Foreign banks already face restrictions in Russia. Under present rules, they must have Central Bank approval and at least $5 million in start-up capital to open a branch, and the market share of all foreign banks cannot exceed 12 percent of total Russian bank equity.