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. Last Updated: 07/27/2016

Kudrin Pushes Ahead Bank Law

The Cabinet on Thursday gave its approval to a draft version of a law setting minimum capital requirements for banks at 5 million euros ($5.99 million), in a move aimed at weeding out so-called "pocket" banks.

The equity requirements, set by the bill, are already being applied by the Central Bank to new banks, but the law is expected to further tighten the rules for existing lenders.

"In effect, we are transferring the norm into law," Finance Minister Alexei Kudrin said Thursday, Interfax reported.

If approved by legislators, the law will come into effect in 2007.

Existing banks that have lower capital than set by the new regulations will be allowed to continue operations. However, the licences of such lenders will be withdrawn if their equity levels fall below those they recorded at the time the law comes into force.

"If such banks lower their capital in the course of three months, their licenses will be canceled," Kudrin said, Interfax reported.

As of Sep. 1, there were 689 banks in Russia with equity below 5 million euros, according to Interfax.

Analysts applauded the bill, which they said would help to get rid of small, opaque market players and further banking sector consolidation.

"Capital is a safeguard tool of last resort," said Irina Penkina, a banking sector analyst with Standard & Poor's rating agency. With the amount of extended credit on the rise, banks need to be able to protect themselves in case of defaults, Penkina said.

Credit extended by Russian banks to individuals and organizations grew by $53.1 billion to reach $141.4 billion by the end of last year, according to S&P.

"Banks with less than 5 million euros of capital are small, pocket banks," Alexei Yazykov, Aton Capital banking analyst, said. "Serious financial and credit institutions" have capital that exceeds 100 million euros ($119.7 million), he said.

More than 500 credit organizations lost their licenses from January 1998 to July 2005; over 87 percent of canceled licenses belonged to banks with capital levels below 5 million euros, Kudrin said.