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. Last Updated: 07/27/2016

Kasyanov: State Will Ease Out of Bank Sector

The state will keep a presence in the banking industry as a temporary measure to share risks with the private sector, but it will reduce its participation to four or less banks, Prime Minister Mikhail Kasyanov said Monday.

"In my view, the government’s participation in most banks is economically inefficient," Kasyanov said after the 13th meeting of the Foreign Investment Advisory Council, which is composed of government officials and executives from large foreign corporations doing business in Russia.

The government owns stakes in 469 of the country’s roughly 1,330 banks, and has been heavily criticized in the past for its failure to address chronic problems in the industry. Kasyanov said that for now the government should keep stakes in two, but not more than four, banking institutions in order to share macroeconomic risks with private investors.

Despite some recent moves by the government to liberalize the industry, Tessen von Heydebreck, a Deutsche Bank board member, said Monday that excessive bureaucracy is still suffocating the sector.

For a company to open an account, for example, it must produce 10 different documents issued by at least five different institutions, said Heydebreck, who oversees the accounts of Deutsche Bank’s private clients. His remarks came from a transcript of the meeting released by the government’s press service.

Heydebreck also said the Central Bank contradicts a recognized international legal concept by telling banks which capital account transactions are allowed, not which transactions are not allowed. He also criticized the Central Bank for limiting the lending activities of international banks without taking into account the borrower’s international credit ratings.

Jean Lemierre, president of the European Bank for Reconstruction and Development, said at a meeting Monday that the growing role of state-owned banks and proposals to set up new state institutions in the industry is a cause for "certain concern," Prime-Tass reported.

Separately, the State Duma’s banking committee last week drafted a law limiting the state’s participation in commercial banks.

According to the head of the committee, Duma Deputy Alexander Shokhin, the government should keep control of the Russian Bank of Development and the Russian Agricultural Bank, and create a Russian version of the Export-Import Bank of the United States, as well as maintain its role in Sberbank and Vneshtorgbank.

Details on the amount of public funds that have been plowed into the banking sector were first revealed last week by the local press, which quoted a Finance Ministry report and led to widespread speculation that the government is attempting to set up a holding company that will manage its stakes in commercial banks.

Kasyanov dismissed these allegations, and mapped out a reform plan that includes trimming back the Central Bank’s commercial empire and solving the conflict of interests that exist with the bank regulating the industry while owning several commercial subsidiaries.