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. Last Updated: 07/27/2016

Software Firms Hope to Cash In on Banks

As Russian banks prepare to switch to international accounting standards in 2004, they will either need to update their automated banking systems or buy new ones. And domestic software companies specializing in automated banking systems -- which provide technological solutions for different banking services -- are bracing themselves for a sales boom.

According to the Association of Russian Banks, the domestic ABS market -- worth an estimated $35 million in 2001 -- is almost totally controlled by Russian companies. Moscow-based Diasoft and R-Style Softlab each have 20 percent to 25 percent of the market, while the rest is shared by fellow Moscow-based firms ProgramBank, Inversiya and Fors Holding, as well as Novosibirsk's Financial Technologies Center.

In contrast, foreign companies, such as Misys and System Access, have less than a 1 percent share of the sector, mostly major banks or branches of foreign banks.

Most software companies agree that the situation is largely a consequence of frequent changes in Russian legislation, which necessitate equally frequent banking system updates.

"The Central Bank issues new regulations so often and in such an extravagant manner that none of the systems developed abroad can be used by Russian banks without changing 90 percent of their content first," said Yevgeny Khokhlov, general director at ProgramBank.

Software produced by foreign developers is more expensive than programs made domestically. Then there are the particularities of Russian business, which are better understood by Russian software companies.

According to Diasoft, the market has been growing at 15 percent to 20 percent per year. The most successful year for the ABS sector was 1997, when the market reached $40 million on the back of explosive sales triggered by the Central Bank's introduction of new accounting rules.

"It has been forecast that 2003 is going to be even more financially successful for software companies specializing in ABS than 1997," said Gennady Zamansky, director of the banking technologies department at Fors.

He added that they have already updated some banks' systems.

Other players are more skeptical about the projected rise in the sales.

"There will be growth for both licensed programs and tailored solutions," Khokhlov said. "But there won't be anything like the 1997 boom." Most banks will be just updating the systems they have already been using, he added.

"There will be no sharp shifts in the banking software market: The process of switching will be smooth," said Alexander Glazkov, chairman of the board at Diasoft.

Financial Technologies Center vice president Alexander Pogudin said the reasons behind the ABS market growth are bigger than just a switch to international accounting standards.

"Russian banks are entering a new level of development," he said. "The new level of tasks requires adequate technological solutions, without which any strategy stays just an unrealized dream."