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. Last Updated: 07/27/2016

For Retail Banks, 1994 Is Promising

MOSCOW -- As Russian banks develop new commercial strategies in a way that was unthinkable a few years ago, competition is expected to heat up in 1994 in retail banking and capital markets, bankers said.

"Retail banking will take off in 1994," Stolichny Bank's President Alexander Smolensky said in a recent interview. "Forget about kids below the age of 16 -- 70 million Russians don't even have bank accounts. That's our market."

Off a slushy Moscow avenue, the outlet for Stolichny, one of Russia's small but dynamic banks, looks dingy from the outside.

But inside, the tellers smile and service is gracious. There is a sense of order rare in Russia, where bankers are often seen as crooks in suits.

With efficient data-processing systems, sharp-eyed credit officers and innovative managements, Stolichny and a number of other commercial banks stand out among crumbling former state banks and dozens of newly created ones with shaky capital.

Stolichny has put branches on line, issued ruble credit cards, installed teller machines and is building new branches. Western-style commercial banks include Dialog, Toko Bank and Inkombank, which are winning plaudits for their service from a well-off client base of expatriate and local businessmen.

"There are lots of profits to be made in foreign exchange as well as capital markets," said Alexei Obozintsev, deputy head of Toko Bank, which has paid-up capital of $250 million.

Bankers said new customs controls to fight illegal capital flight would also increase foreign currency on the market. But they were pessimistic about their real task: sending funds from savers to producers.

The cost of borrowing for Russian companies more than doubled in 1993. Despite a fall in monthly inflation to 12 percent in December, loan rates hover over 200 percent a year.

Few banks extend credits for more than six months. The average is for three months or less. There are no mortgage loans or car loans or other Western-style retail banking services.

Life at a Russian bank is not what your average Western financier would consider normal -- collaterals include aircraft, boats, dachas, goods on inventory and leases on buildings."We take planes, we take paintings, you name it," said Stolichny's Smolensky.

"With lending rates we have in Russia, I do not expect much financing of medium-term investments," said Vladimir Rayevsky, Vice-President of Neftekhimbank, specializing in oil and energy.

Russian banks instead invest money abroad. By June 1993, they had $15 billion stashed in banks abroad.

"There are more profitable ways to make money than lending rubles, for example trading in raw materials which are abundant in our country," said Stolichny's Smolensky. "By trading real estate you can net profits of at least 40 percent," he added.

"In America, the same dollar has been trading for over 200 years. People trust this piece of paper. How can we trust our ruble when our Central Bank is engaged in every sort of monkey business except restoring confidence in our money?"

Looking ahead, analysts expect mergers and takeovers to reduce the number of Russian banks -- at present 1,800 -- in line with a sweeping overhaul by the Central Bank.Three of the strongest Russian banks -- Imperial, Yugorsky Bank and Rossiisky Kredit -- merged last year to form one of the strongest financial institutions, with assets worth $1.3 billion.

Central Bank officials say only 19 percent of banks meet the minimum 100 million rubles ($77,100) capital required.

Other problems, from corruption to the absence of a good settlements system and short-term money markets, hamper development.

"The bank across the street wants to transfer rubles to our account using the SWIFT payments system via Brussels," said Alexander Rasskazov of Stolichny. "How are we supposed to do banking when we don't even have a proper settlements system?"

"We have no control over money. Money just disappears."