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. Last Updated: 07/27/2016

Cabinet Eases Bank Restrictions

Itar-TassKudrin, right, and economic minister German Gref at meeting on Thursday.
The Cabinet on Thursday approved a bill that would make it easier for foreign investors to buy shares of Russian banks.

If passed into law, the amendments would give foreign investors the same rights to buy ordinary bank shares as Russian residents, getting rid of a system of "blessed" shares that has required foreigners to seek state approval first.

"It was a big obstacle for investors, and it didn't make much sense," MDM analyst Alex Kantarovich said, referring to the current rules.

Kantarovich compared the current system of blessed shares to the "ring fence" that once separated Gazprom shares for foreigners from those held by Russians.

Currently, foreigners who want to buy bank stock either have to find someone willing to sell them blessed shares or to undertake a series of bureaucratic hurdles and several weeks of waiting to have regular shares blessed, during which time the seller could balk.

The rule change is not expected to affect Sberbank trading much, since plenty of its blessed shares are circulating in the market, but it could make shares in banks such as Rosbank, the Bank of Moscow and Vozrozhdeniye much more attractive to foreign investors.

Finance Minister Alexei Kudrin said at the Cabinet meeting Thursday that Russia would reserve the right to cap foreign capital at 50 percent. Currently, some 13 percent of the banking system's capital is in foreign hands.

Besides the blessed shares modifications, the bill reduces the size of a bank stake that a strategic investor can purchase without notifying or getting permission from the Central Bank.

Approval from the regulator would be required for any investor buying 10 percent or more of a financial institution -- down from 20 percent currently. In addition, anyone buying 1 percent or more would have to notify the Central Bank, down from 5 percent currently.

It was not clear when the legislation would be sent to the State Duma.

The reform could help jump-start the IPO process in the banking sector and propel state-owned Vneshtorgbank, or VTB, and others to list their shares, he said. VTB was recently removed from a list of strategic state-controlled companies, a step toward a future initial public offering.

Liberalizing the rules also would help Russia on its accession to the World Trade Organization, although analysts say the biggest sticking points in those negotiations are Russia's rule against direct foreign bank branches and a possible future limit on foreign capital in the banking system.

Sberbank shares on the MICEX were trading at 56,150 rubles ($2,098), up 794 rubles, Thursday afternoon. Rosbank, Bank of Moscow and Vozrozhdeniye shares were virtually unchanged.