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. Last Updated: 07/27/2016

Kozlov: Bank System to Be Efficient by 2005

SOCHI, Southern Russia -- The Central Bank is aiming to jump-start the country's inefficient banking sector by rooting out bad performers by 2005, First Deputy Central Bank Chairman Andrei Kozlov said Friday.

"We think that the next two to three years will be critical for the Russian banking system," Kozlov said at a banking conference.

"For the bank supervisory system they will also be hard, but we hope that in three years we shall become as effective as banks from member states of the [Organization for Economic Cooperation and Development.] Our goal is to remove ineffective organizations from the market before they have created problems for the market."

Kozlov reiterated that a system of obligatory deposit guarantee would be launched by 2005 and only transparent and stable banks would be allowed to work under the system.

Currently only Russia's largest bank, state-owned Sberbank, has state guarantees on household deposits. It holds about 80 percent of them.

The new guarantee system aims to break Sberbank's monopoly and give other banks much-needed long-term funds for lending.

Kozlov said the Central Bank would soon define the criteria under which banks would be accepted into the guarantee system.

"Those who are up to the mark on all criteria for the guarantee system will have normal supervision [from the Central Bank], those who do not will be supervised more strictly," Kozlov said.

In another reform move, the Central Bank said Friday it will phase out a rule on Dec. 1 calling for local banks to deposit in advance dollars earned by local exporters and sold in the official foreign currency exchange market.

Local exporting firms must sell half of their hard currency revenues to a so-called unified trading session of eight exchanges or straight to the Central Bank, a rule imposed after the 1998 financial crisis to slow down capital flight.

The session is tightly controlled by the Central Bank as its results usually serve as a basis to set the bank's official next day ruble/dollar rate.

"The Central Bank believes that the changes will ensure liquidity of UTS instruments," the bank said in a statement. "And it would also reduce costs of operations of market participants and will help to increase the stability and transparency of the domestic foreign currency exchange market of the Russian Federation," it added.

To sell hard currency during the unified session the banks have to deposit funds on the eve of the session. They have complained it was increasing their costs.

Bankers welcomed the move.

"It is another step in the right direction toward market liberalization as the banks will benefit from not having to keep their funds at zero interest rates with the exchange," said Sergei Shepilov with Raiffeisen Bank.

The Central Bank has promised to allow exporters to sell their export revenues also on the interbank market after a protracted dispute with banks and exporters campaigning for a more open and flexible currency regime.

The bank said last month it was working on new rules allowing exporters to sell their revenues to buyers of their choice, with the changes to take effect also on Dec. 1.