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. Last Updated: 07/27/2016

Russian Banks Set Sights on Central Asia

Russian commercial banks are increasingly setting their sights on Central Asia, hoping to gain access to new financial markets and get an inside track on future state privatizations.

Although facing resistance from local and national banks that fear being dominated by their heavyweight counterparts from abroad, Russian lenders -- sometimes in partnership with less developed native institutions -- are aggressively plowing into Kazakhstan, Kyrgyzstan and other former Soviet republics with new branches and investments.

Moscow-based Alfa-Kapital recently became the fourth Russian bank to set up shop in Kazakhstan, with a branch backed by $1.5 million in charter capital. It follows on the heels of BAM-Kredit, Neftekhimbank and Evraziisky Bank.

"Privatization will start soon in Kazakhstan, and we'll be there to take part in it," said Sergei Komarov, head of Alfa-Bank's branches department.

Such interest has inevitably bred some suspicion and resentment in Central Asia.

"Against the background of local banks, Russian banks, with their assets, look like big structures," said Vadim Kisin, deputy minister of Russia's CIS Ministry. "National banks of independent states are afraid of competition because we are really strong."

Andrei Milov, head of the branches department for Rossiisky Kredit Bank, acknowledged that "the widening of financial networks in the CIS is a delicate issue."

"Sometimes informational leaks brought tensions in relations with the national bank in the country, and it started to delay decisions," Milov said.

Nevertheless, Rossiisky Kredit intends to open a bank in Kyrgyzstan with a charter capital of $1 million in partnership with a local bank. The institution will be called Rossiisky Kredit, and the controlling package will be held by the Russian side.

Rossiisky Kredit already controls its branch of the same name in Turkmenia.

Inkombank, one of Russia's fastest growing and biggest lenders, is now hoping to penetrate neighboring markets by opening branches in Belarus, Kazakhstan and Ukraine.

"Our clients have interests in these regions, and we'll provide service for them," Inkombank press secretary Sergei Zatsepilov said. "We think that the single economic space can be restored, therefore the recovery of old ties and search for new forms of cooperation become vitally important for enterprises." Moscow's Avtobank is setting up farther afield, in Kyrgyzstan. Together with the domestic Ak-Niet bank it established a joint venture with $1 million in charter capital. The controlling stake belongs to Avtobank.

The new institution will provide cash-account services for local clients, securities trading, interbank credits, bank cards and investment, officials said. It plans especially to attract representatives of local mineral industries and manufacturers of consumer goods.

Alfa-Bank's Kazakhstan branch is focused on providing services primarily for the industrial and trade interests of the Alfa-Group consortium, which includes Alfa-Bank, Komarov said.

"We have longstanding trade contacts with Kazakhstan and had to overcome problems associated with payments and slow transactions," he said. "Therefore, we decided that it would be better to open a subsidiary bank," Komarov said, noting "numerous bureaucratic obstacles" before opening the branch with only local employees.

Russian bankers stress that opening branches in the CIS states will provide them with flexible capital.

"Kyrgyzstan is the most interesting country for exporting capital," Natalya Raevskaya, chairman of Avtobank's board of directors, said at a recent press conference.

But Alfa-Bank's Komarov stressed that "pumping Kazakh money into Russia is not our goal."

"We'll work on the local markets," he said.