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. Last Updated: 07/27/2016

Avtobank Takes Shining to the East




Avtobank is going east in search of gold.


Seeking to cement a drive to move in on Russia's sagging production industry for the precious metal, Avtobank is opening new branches near to Siberian gold mining fields, bank officials have announced.


However, the institution's plans to join Russia's commercial bank gold rush in Siberia could be scuttled by a government drive to slap punitive new tariffs on gold exporters.


Just as Avtobank announced intentions to open branches in Omsk and Irkutsk to bring its services closer to clients in the gold mining sector, the Russian government earlier last week moved to levy a flat 5 percent tax on gold exports.


Russia's commercial banks are flocking to export precious metals as a more stable source of currency income after the high risk treasury bill market collapsed last August and left many banks badly burnt.


But analysts say the new export tariffs that go into effect at the end of this week could intensify a struggle for access to the gold market between the Central Bank and commercial banks.


With a license to export 20 tons of gold this year, Avtobank has already signed agreements with gold mining companies to buy some 5 tons of gold in the regions of Chita, Chukotka and Khakassia, Avtobank spokesman Alexander Tkachev said.


It is also maneuvering to clinch deals in Magadan, Krasnoyarsk and Irkutsk in order to fill its export quota and sees expansion of its regional bank network into Siberia as an opportunity to bring its services closer to potential clients, Tkachev said.


According to Tkachev, Avtobank has extended a $4 million credit line to local gold mining companies in Chita, Khakassia and Chukotka.


But these first small steps could be the only ones the bank will take - and its is putting on hold any follow through for now.


"We will now have to wait on all our negotiations until the tariffs are introduced," Tkachev said.


Adding insult to injury, gold production in the chronically underfinanced sector is continuing to slip. Production this year is estimated at just 100 tons, down from only 115 tons last year.


At least eight other commercial banks, including Rosbank, Rossiisky Kredit and Sberbank, are jockeying for a piece of the action, while Russia's Central Bank announced last month it was looking to buy up 90 percent of the year's production.


Although the Central Bank is prohibited from purchasing gold directly from producers, parliament passed on first reading earlier this month amendments to the law on the Central Bank that would overturn the ban.


Last Thursday's introduction of a 5 percent export tariff on gold could play into the Central Bank's hands, said Margot Jacobs, a banking analyst at United Financial Group.


"If the tariffs are introduced, commercial banks may be forced to sell gold to the Central Bank to avoid the tax," she said.


Avtobank for that matter is somewhat beholden to the Central Bank for its continued capacity to stay afloat. The bank was targeted earlier this year as a worthy recipient of Central Bank stabilization credits designed to prop up major banks left on the verge of illiquidity by the August financial crash.


Analysts say its favored status as a recipient of Central Bank credits has seen it through the worst of the after-shock of the crisis.