Two of Europe's biggest banks will set up a jointly owned subsidiary based in St. Petersburg within the next year under an agreement with the Russian Central Bank.


Dresdner Bank AG of Germany and Banque Nationale de Paris, the two banks involved in the deal, are part of a field of at least 10 foreign banks trying to enter the Russian market.


Western banks have been attracted to the Russian market both for its long-term prospects and in the short term to provide much-needed competition for Russian banks with their high fees for basic services.


The decision by the Central Bank comes despite strong opposition from the Russian banking lobby at a decision last year to grant a license to Credit Lyonnais of France.


Credit Lyonnais expects to open its first office in St. Petersburg in months. Bank Austria was allowed to establish a branch in Moscow with a more limited license. Dialog Bank and the Moscow International Bank have been established on a joint-venture basis.


Jurgen Woller, chief representative of Dresdner Bank, said that under the letter of intent signed last Friday the Central Bank agreed to issue a general banking license within a year. He said the bank would have working capital of between $5 and $10 million.


Dominique Menu, chief representative of Banque National de Paris, said foreign investment in the banking sector was still a political issue but he expected the letter of intent to be fulfilled. "I don't think the Central Bank would have signed if they did not think so", he said