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. Last Updated: 07/27/2016

Central Bank Eases M&A Regulations

The Central Bank on Wednesday approved new measures to speed up consolidation of the fragmented banking sector by making mergers and acquisitions easier, but fundamental problems in the industry continue to be a drag on the economy, analysts said.

The Central Bank will now approve or reject mergers within four months instead of six, and rule on acquisitions within three months instead of six.

It also no longer requires that private bankers meet with Central Bank officials to discuss a prospective merger or acquisition; that the Central Bank audit the banks involved; or that the banks involved compile a joint balance sheet.

"The simplified merger and acquisition procedure will help lower costs incurred by banks involved," says the text of the statement circulated by the Central Bank.

Analysts, however, were mixed on the importance of the decision. "It seems to be a very positive move," said Andrew Keeley, a banking analyst at Renaissance Capital. "It is a technical decision, but a symbolic one in terms of reform of the banking sector."

"This is a cosmetic move," said an analyst at Rating, a banking research center. "All the removed requirements are nevertheless met in the process of a merger or an acquisition."

Bank mergers are not common in Russia, but acquisitions are -- usually as a form of asset-stripping, where the acquiring company takes over the business of a smaller bank and then sells that bank's license on the market.

Banking licenses are difficult to get and go for about $1 million, so banks are reluctant to part with a second license if they get it in the course of an acquisition. Rarely are "civilized acquisitions" conducted, whereby the second license is returned to the Central Bank, said the analyst for Rating. One exception, he said, was the 2001 takeover of Bank Austria Creditanstalt by International Moscow Bank.

In its announcement Wednesday, the Central Bank said reducing bureaucratic hurdles is part of a five-year restructuring strategy approved under the previous chairman, Viktor Gerashchenko, two years ago.

Banking sector reform may be under way, but analysts said it is going at a painfully slow pace.

There are more than 1,300 incorporated banks, and about 1,000 have capital of around $1 million or less.

The slow pace of reform, coupled with political risks and Central Bank inefficiency, could keep Russia from receiving the coveted investment grade status by international ratings agencies.

"In the banking area, we would like to see some progress in at least some fields, including deposit insurance, restructuring and liberalization of the industry and privatization of Sberbank," said Helena Hessel, sovereign ratings director of Standard & Poor's in New York.

Over the last decade or so, eight of the 93 countries tracked by Standard & Poor's have been upgraded from speculative to investment grade, and seven of the eight are still there. They are Hungary, Mexico, Poland, Slovakia, South Korea, South Africa, and Trinidad and Tobago.

Hessel was highly critical of Gerashchenko's stewardship of the Central Bank, because he "blocked almost all major bank reforms."

But the new chairman, Sergei Ignatyev, "has already moved things forward," she said.