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. Last Updated: 07/27/2016

NEWS ANALYSIS: Kremlin Muddied Waters By Cashing Out of Banks

President Boris Yeltsin has moved to expedite the process of removing billions in state funds from private banks, but he may have done more harm than good.

Yeltsin last week ordered the government and the Central Bank to give state-controlled banks a monopoly on servicing all revenue payments and move the accounts of all state-owned companies to such banks.

The order follows a Finance Ministry announcement last month that the government was going to move budget cash away from private banks and park it instead at state-owned Sberbank and Vneshtorgbank.

However, Yeltsin's impatience with the slow pace of change may have simply served to muddy the waters, analysts and banking industry figures said.

His decree leaves a host of questions unanswered. The biggest one is, what exactly is a state-controlled bank?

A state-controlled bank could be taken to mean only state-owned institutions Sberbank, Vneshekonombank and Vneshtorgbank. Or it could also include banks controlled by regional governments.

Then again, considering the Central Bank's stabilization loan packages have required banks to hand over 75 percent or more of their shares as collateral, it could also mean banks that have received stabilization loans.

Or, according to some bankers at least, it could mean any bank.

Soyuz bank, formerly known as SBS-Agro, could be considered state-controlled because the Central Bank "has enough instruments to control any bank in Russia," said Sergei Meshcheryakov, Soyuz bank spokesman. His bank is keen to help the government with handling revenues, he said.

However, for all the billions of rubles that the Central Bank has pumped into Soyuz bank under the stabilization program, there has been no sign that the Russian government is willing to put budget accounts into the bank.

The more likely scenario for now would involve using the hundreds of regional banks scattered throughout Russia. But that also has its drawbacks as it would be a boon for provincial leaders associated with them.

"All the regional leaders are going to love the idea, this is a dream offer for them," said Alexei Vasilyev, head of company information at Skate information agency.

According to analysts, Moscow revenues are sure to fall into the hands of the Bank of Moscow, controlled by the municipal government. The bank already handles a significant amount of the Moscow city administration's finances, as well as holding in trust city stakes in private companies.

Regional banks that are not yet state-controlled, but are closely connected with local administrations, can simply hand over a controlling interest to them to obtain the right to handle revenues.

This is likely to happen first in those regions where large Moscow banks have closed down their branches, said Andrei Ivanov, a banking analyst with Troika Dialog.

Some banks have recently offered the government shares in exchange for lucrative state orders.

According to one expert, the project to establish state control over revenues may have been tailored to fit First Deputy Prime Minister Yury Maslyukov's plan to create the Russian Bank for Reconstruction and Development, which, under one possible scenario, would finance the industry with money deposited in Sberbank. The bank could also take care of revenues, the expert said.

Some analysts dismissed the scheme as impossible to implement in the foreseeable future.

"This is a purely political action, not a single problem is solved," said an expert with the Rating Information Center, who declined to be identified. "State-controlled banks are known to spend money in the most ineffective way."

Ivanov of Troika said the measure, which the government attempted to take in the past to boost revenues, is justified. "The government needs to control budget revenues," he said. "This is not going to be viewed as a return to the administrative system. You need a stable situation to use market methods."