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. Last Updated: 07/27/2016

500 Banks To Lose Licenses

The Central Bank intends to withdraw licenses from 500 small, undercapitalized commercial banks in 1998, a senior official said Thursday.

"There are 700 banks with a capital of less than 1 million ecus [$925,000] in Russia, and 500 of them are doomed to die. We will have to close them," Andrei Kozlov, first deputy chairman of the Central Bank, told a meeting of bankers.

Central Bank chief Sergei Dubinin said Russia needed a trustworthy banking system.

"We do not need many small banks; we do not need several big banks; we need a banking system that is trustworthy and can manage risks," he said. "We think it would be a mistake to focus on a certain group of banks, but it would also be a mistake to preserve small or regional banks at any cost."

The Central Bank requires all commercial banks to have capital of at least 5 million ecus by July 1, 1998.

But Sergei Yegorov, chairman of the Association of Russian Banks, argued that it is necessary to preserve banks with capital of less than 1 million ecus after 1998.

"There are 707 such banks in Russia -- this is half of the banking system. If we cast away banks that are having problems, then about 40 percent of the banking system will cease to exist within several months," he said.

Currently, there are about 1,700 banks in Russia, and last year, the Central Bank withdrew over 300 licenses.

Banks mushroomed in Russia after the country started its economic reforms in 1992.

Many of the structures that remain today are not banks in the Western sense, but brokerage institutions with low capitalization and risky credit policies.