ANDREI KOZLOV JOINED the Central Bank of Russia in
March this year as its deputy chairman and is spearheading
the drive to reform Russia's ailing banking sector. Euromoney
met him last month to discuss the central bank's latest
initiatives, including the controversial new deposit
insurance scheme. Although this may bring stability to the
banking system, the fear is that unless it is accompanied by
tougher regulation it could create moral hazard: banks might
be encouraged to take big risks confident that the fund will
bail them out if they fail.
The World Bank and IMF have been asked by us many times in
previous years for their opinion on the introduction of deposit
insurance in Russia. They said that it was impossible to set up a
deposit insurance scheme with big banks. They recommended that the
banking system should be cleaned up first.
Until a year ago the central bank agreed, especially after the
crisis when it was not clear what was happening. The system needed
to be stabilized. At issue is not deposit insurance per se but a
level playing field for all the banks in this market.
The question remains how to introduce deposit insurance in a
weak banking system. After long consideration, it was decided that
the government and central bank together would like to re-establish
trust and provide some guarantees to all private depositors in the
banking system.
These guarantees could be provided by two things in parallel.
First, technically creating the deposit insurance scheme and fund,
defining the way it is financed and the way money is spent.
Secondly, enhancing and strengthening the supervisory rules for
banks allowed to join the scheme.
This is the most frequently asked question and, to be frank, I
don't know. Until you go into each bank and analyze its details it
is impossible to say which will be able to join.
Our approach is based on the current legislation and our
understanding of fit and proper behaviour - financial and other -
based on international experience and recommendations of
supervisory authorities such as in western Europe and the US.
In the US the deposit insurance regulator has three broad areas
of work: to run the deposit insurance scheme; to be the sole
corporate liquidator of the insolvent banks; and to be the
supervisory authority.
In our case the first two tasks will be taken on by the Agency
for Reconstruction of Credit Organizations (Arco), but it will not
be a supervisory authority.
The central bank and Arco have already become members of the
newly established International Association of Deposit Insurers (in
Basle). There are three levels: full, associate and observer. The
central bank is an associate and Arco is an observer.
According to the latest draft of the law Sberbank will become a
member of the scheme on the same terms as any other bank. This will
happen after it has been verified by us, after a special inspection
looking into all the details that will be studied in each bank that
is involved. It has to jump the same hurdles as everyone else.
The contribution is the same. The timing is the same. The only
difference is not for Sberbank but for its depositors. Their money
will be insured 100% until 2007, it is still under consideration -
it is up to the state Duma to decide.
Its participation will not give a privilege to Sberbank but to
the depositors. It is done to avoid a shock in the very
beginning.
This was allowed by the central bank - it didn't happen all of a
sudden. We gave them an allowance, but it was not a general
allowance to act like this for ever. Both the banks - Vneshtorgbank
(VTB) and Sberbank - presented a timetable to reduce this level
gradually until they meet a deadline on June 1 2003. By then they
should be in the common limits set for all banks.
Sberbank is not the problem in the banking system. It is the
biggest and strongest bank in the country. It is a problem for its
competitors and we agree with this.
I don't think that Sberbank should keep this position - thanks
to the central bank or the government - for ever. We need
competition and the share of Sberbank in the retail deposit market
is declining by about 5% a year. At the start of this year the
share of Sberbank was approximately 75% of all retail deposits and
now it is about 70%. In five or six years it could be less than 50%
again; in 1997 the share Sberbank had was about 50%.
We are not for revolution, we are for evolution. We have to
provide incentives for Sberbank competitors to grow fast and to
enlarge the volume and spectrum of services to clients, including
foreign banks. We are not afraid of foreign banks in this country.
Let it become a more competitive situation.
But until then, while Sberbank is the one big bank in the
country, we shall not make revolution. It wouldn't be prudent.
Last month the central bank adopted new rules for
cash-processing centres for commercial banks. Before, the central
bank had relatively strong rules about how offices, vaults and the
like should be constructed. These requirements made it quite costly
for banks to set these up, irrespective of the amount of money kept
in these walls.
We have dropped all these requirements and said that it is up to
a commercial bank to choose the level of security and construction
for its own buildings. We are moving along the road, levelling the
playing field.
[Sberbank's domination of the sector does represent] a danger,
but this is not the biggest problem of the banking business. The
biggest is the high costs of doing business and the low
profitability of banking in general. Banking is not profitable.
A new banking inspectorate is under construction. Not only this,
but we have several internal programmes to improve the supervision
of banks.
The first is the creation of "curators" or personal supervisory
officers, who are in charge of knowing everything in each
particular bank. Just now the system is not installed, only in some
regional branches [of the central bank], where there are some
people who are responsible for knowing what is going on in every
bank.