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. Last Updated: 07/27/2016

Moscow May Remove Limits on Foreign Banks

In a bid to head off pressure from the European Union over domestic energy prices, Russia may dump restrictions on foreign ownership of banks as it vies for World Trade Organization membership, a Central Bank official said.

A official, who asked not to be identified, said last week that the government may abolish legislation that allows domestic banks to impose a 25 percent ceiling on foreign banks' participation in their charter capital.

The limitation has never been applied other than a temporary limit of 12 percent imposed by the Central Bank in 1993.

Russian negotiators, however, introduced quotas during talks with the WTO as a way to protect the fragile banking sector when the country enters the trade organization.

Negotiators also suggested banning Russian branches of foreign banks.

The source said that as a compromise, Russia will be permitted to set its own internal prices on electricity and gas -- a matter of contention during WTO negotiations, particularly with the European Union.

"The main decision about revoking the quota system has already been taken," the source said. "Though this is a negotiation process and obviously we are trying to keep some limitations."

"In exchange for the quotas, we can logically expect the systems requirements to be lifted -- and this, first and foremost, means energy tariffs," a WTO negotiator from the Economic Development and Trade Ministry said.

"I don't see that this could undermine the well-being [of the Russian banking system] because there's still a long way to go before any well-being is achieved," Alfa Bank manager Oleg Tumanov said.

"Foreigners can bring new technologies, new products, new ideas and professionals that the Russian market needs," he said.

Analysts agreed.

"Removing limitations is a successful psychological and negotiating step," said Mikhail Matovnikov, an economist with the Interfax Rating Agency.

"But the presence or absence of a limit will mean no real changes for Russian banks."

An expert with the ITs rating agency, who wished to remain anonymous, said foreign capital has long been present in the Russian banking sector.

"The well-known international brands do this directly, in particular through their subsidiaries, while many others control Russian banks informally," he said.

The current limitation on foreign ownership is 7 percent.