Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Banks Suffer From Rumor Mills

Russian newspapers have recently been carrying reports concerning the problems experienced by this or that bank. It is quite interesting that these reports have been appearing in nonprofessional publications whose authors, as it turns out, are not completely qualified to appraise the actual financial framework of those scandals they are describing.

This press war has touched to the greatest degree upon two giants of the Russian banking industry: Inkombank and Promstroibank. In both cases, the banks were prime targets for a campaign of this sort. Why ? They both have well-known enemies, who, although they are not business competitors, have an interest in discrediting them. It seems to me that these external enemies, who will I mention shortly, could never have organized the press scandals of the last two months. But their existence was a useful cover for any competitor who wanted to have a smokestream behind which to mount a disinformation campaign.

In the case of Inkombank, it is American lawyer Emmanuel Zeltser, who was once in charge of the bank's U.S. operations but for a number of reasons was later relieved of his responsibilities. Now the bank and its former attorney are battling it out in court to determine whether or not a group of U.S. investors purchased 40 percent of the bank in 1993, whether the money for the purchase was transferred to Inkombank accounts and why the investors' names were taken off the bank's register (or never appeared there in the first place). The shady story has been written of often and by many journalists -- including those who know nothing about banking and who, even if they should come across a pertinent line in a bank statement, would not be able to understand its significance without help. What is more, the actual court case has still not taken place, and banks, and indeed individuals, are supposed to be innocent until proven guilty.

The case with Promstroibank is even more complicated. Enemy No. 1 is Stanislav Degtyarev, who for many years was a close ally and deputy to the bank's chairman of the board, Yakov Dubenetsky. Degtyarev was eventually fired in the midst of scandal. Naturally, the firing of someone familiar with all of the bank's problems -- and there are more than enough at any bank -- is an uncertain process, if not a mad one. After all, it was only when the scandal between Dubenetsky and Degtyarev broke that the general public became aware that Promstroibank of the Russian Federation had already for some time been operating as a private bank -- as private as MOST and Alfa banks, which made no effort to hide their privatized status -- and that 80 percent of the bank's stock belonged to the bank's chairman. To be more specific, Dubenetsky does not formally own the shares, but holds them in trust.

An Israeli partner, with whom Promstroibank had formed a finance company, is the bank's No. 2 enemy. That company was responsible for gathering funds from Israeli citizens, which would then be deposited into the bank's accounts. There is no doubt that 15 percent annual interest rates on hard-currency deposits were extremely attractive for Russian emigr?s, who remembered that Promstroibank was formerly a state bank, and thus was supposed to be more dependable and conservative than its recently formed peers. Once again it is a complete mystery whether the money was ever collected and sent or is on the way to Russia, if it was diverted or spent once it reached Russia, or if the Israeli partner even sent it to Russia at all.

A third problem for Promstroibank is the persistent rumors that it financed communist candidate Gennady Zyuganov in the presidential elections. These rumors were almost subconscious, but I can tell you that the anti-communist subconscious of the government and the Central Bank is very strong.

It is no secret to anyone who has been observing Russia's liberal reforms that the golden age of Russian banking ended nearly a year ago. Russian banks, who had become accustomed to high hard-currency and interbank earnings, have felt a chill running up and down their spines. It has become more and more difficult for them to earn a living, but the government nevertheless has decided to implement a financial stabilization policy that one year ago was only a topic of conversation.

But bankers would rather not have to economize -- one quickly becomes accustomed to living well, even wealthy engineers and accountants are hesitant to cut back on expenses. Here I would like to say that I know of only one or two banks to which the statements above do not apply. You can say as often as you like that there is not and will not be a banking crisis. But this will not make the problems affecting the banking sector go away. Almost every bank is bearing a heavy burden of unpaid credits and unfinished construction.

But let us return to those who are suffering at the hands of this media attack. It is well known to those familiar with the banking community that Inkombank and Promstroibank have maintained good relations with each other.

Whether or not it is by accident, their names have simultaneously been on journalists' lips. They try to put on a show that these daggers from the press do not concern them.

But how could these attacks make no difference to the banks' clients, and especially to private depositors? It is of interest to point out that Inkombank is Russia's second largest, in terms of private deposit volume, after Sberbank. Promstroibank is among the top five banks working with private individuals.

Losing client money is a fatal proposition for any bank, especially the loss of such a stable resource as savings deposits.

I understand that asking bankers to act according to good morals is the same as asking a wolf to stop eating sheep. But I still do not believe that life will become simpler for any banker if Inkombank and Promstroibank leave the market.

Therefore it would probably be more farsighted to refrain from slinging mud either in secret or in the eyes of the public. None of us are saints.