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. Last Updated: 07/27/2016

Analysts Predict New Rules Will Lead to Bank Closures

New Central Bank requirements will force many commercial banks to close, but the rules will not provoke a new crisis as a handful of strong banks will prop up the system, analysts said Thursday.


The Central Bank has recently tightened commercial banks' reserve requirements to sterilize the transfer of 5 trillion rubles of 1994 profits to the government. It has also cut limits on banks' permissible open currency positions by 20 percent.


As of May, it raised charter capital requirements to 12 billion rubles ($2.35 million) from six billion rubles.


"Few banks will be able to cope with the new demands," said Aleksei Obozintsev, Mosbusinessbank executive vice president. "Many banks will have to think about how to survive. Many would like to merge, but the number wishing to be acquired by far exceeds those capable of taking them over."


He said the number of banks would have to shrink, but the banking system would remain viable, based on the strongest ones.


Mosbusinessbank estimates show that 70 percent of banking assets are concentrated in Russia's 15 to 20 biggest banks, and analysts said these had the experience and capital to survive.


Pavel Neumyvakin, deputy chairman of Bank Vozrozhdeniye, agreed, saying a liquidity crisis last year had taught the biggest banks a good lesson. "There are prerequisites for new tensions on the market, rather than for a crisis," he said. "But it is a fact that the biggest banks are more prepared for this than a year ago."


Last August a liquidity crisis shook the Moscow banking world and the interbank market has not yet fully recovered from it. The number of banks participating in interbank trading shrank and banks now only trade with those they can fully trust.


Neumyvakin said gossip about liquidity problems at various banks were a permanent feature of the market.


"I cannot see any improvement in the banking sector. We live in constant expectations of a crisis," he said.