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. Last Updated: 07/27/2016

Foreign Banks Cleared For Local Acquisitions

Several foreign banks are poised to make acquisitions after the Central Bank granted them permission to buy stakes of more than 20 percent in local lenders.

Speaking on the sidelines of the eighth All-Russian Banking Forum in Nizhny Novgorod, Central Bank First Deputy Chairman Gennady Melikyan told reporters that in the last few days he had "signed several papers permitting the acquisitions of stakes exceeding 20 percent in several Russian banks."

Melikyan declined to disclose specifics of possible deals, saying only that the acquisition targets were Moscow-based and among the country's 100 largest banks but did not include any in the top 30. Among the potential buyers, he said, was a South Korean bank. The Central Bank's approval is valid for one year.

In the past 18 months, Russia has relaxed the rules for foreigners investing in the banking sector. Recent changes to legislation oblige both resident and nonresident companies seeking more than 20 in a Russian bank to obtain approval first from the Central Bank.

RusRating chief executive officer Richard Hainsworth said Friday's announcement likely reflected the fact that the Central Bank had received a lot of requests since the change in the law. "This is probably a technicality rather than an indication of a trend. It will be interesting to see what happens in the next two to three months," he said.

Foreigners currently hold stakes in 188 Russian banks, Melikyan said. As of July 1, overseas investors have increased their share in the sector's combined capital to 21.3 percent. This compares with 12.9 percent a year ago, Reuters reported.

Andrew Keeley, an analyst with Troika Dialog, said the banking sector was "pretty attractive" for foreigners. "Growth is extremely strong, and the market is still relatively underdeveloped," he said.

Hainsworth pointed out, however, that while there was a lot of discussion, there had not been many deals.

The banking sector has this year faced mounting criticism of its consumer credit practices. Russky Standart, the country's largest consumer lender, has made significant changes to how it charges its customers following a recent probe by the Prosecutor General's Office.

Analysts said it was too early to say whether an increase in foreign participation would have a significant impact on these practices. But Leonid Slipchenko, a strategy analyst at UralSib bank, said the participation of foreign players should add to transparency and competition in the sector.

Last week, Italy's Intesa Sanpaolo said it was interested in banking acquisitions in Russia and Ukraine.