Russia’s financial system: What a waste
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Russia’s financial system: What a waste

Decades of work have been put into building Russia’s financial system. Putin’s war is destroying it overnight.

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If one thing is more certain than another, it is that the plight of Moscow’s financial community is unlikely to elicit much sympathy in the current crisis. Yet for those who have followed the development of Russian banking and markets in the 21st century, it is hard not to feel at least some sadness and frustration at the sheer waste of it all.

Since the Russia financial crisis in 1998, and particularly over the past 15 years, a vast amount of time, money and effort has been put into transforming the country’s financial capabilities. Take three leading state financial institutions – Sberbank, the Moscow Exchange and the Central Bank of Russia (CBR).

When Herman Gref took over as chief executive of state-owned retail giant Sberbank in 2007, Russia’s largest lender was a Soviet relic, with surly staff serving disaffected customers in dismal branch offices.

Under his leadership, it became a consistently profitable technological powerhouse offering a dizzying array of banking and non-financial services via an ever-expanding digital ecosystem. Indeed, as recently as December, managers were predicting that Sberbank shares would one day be valued in line with the likes of Amazon and Alibaba.

As recently as December, managers were predicting that Sberbank shares would one day be valued in line with the likes of Amazon and Alibaba

The Moscow Exchange is another success story. Formed in 2011 from the merger of Moscow’s leading post-Soviet stock exchanges, Micex and RTS, Moex has rapidly developed into one of the most sophisticated bourses in emerging markets.

It is hard to remember now that there was a time when Russian capital markets were off-limits for all but the most daring international investors, with the remainder opting to trade through London or New York. For years, Moscow has been the natural destination for Russian firms looking to IPO.

Then there is the central bank. The appointment of Elvira Nabiullina as governor by president Vladimir Putin in 2013 raised some eyebrows, but the former minister has proved a competent steward of the Russian banking sector and economy.

On her watch, the CBR has dealt with the bursting of Russia’s consumer lending bubble, implemented a comprehensive clean-up of the banking sector – including nationalizing two of the country’s biggest private-sector banks – and played a key role in driving digital innovation.


These are not small achievements. Putin’s first Ukrainian incursion in 2014 and a subsequent oil price collapse took a toll on all three institutions. The CBR had to deal with a plummeting currency, rising inflation and bank failures.

Sberbank had to abandon dreams of westward expansion, as it became clear that these would be unacceptable to European regulators and customers. Successive rounds of western sanctions shut Russian capital markets for months at a time.

True, Sberbank, Moex and the CBR have had the resources of the Russian state behind them. Nevertheless, their resilience and development over the past 10 years has only been possible thanks to the commitment of hard-working teams of expert staff.

Now, all of that effort looks to have been for nothing. Crippling sanctions imposed on Russian policymakers, banks and the CBR have caused such a panic among investors that Moex is closed and brokers are banned from selling securities held by foreigners.

Reversal of fortune

London markets gave an indication of the scale of the rout when trading resumed on February 28 after sanctions were imposed over the preceding weekend. For years, Sberbank was seen as the safest bet in Russia for emerging market investors. On February 28, its depositary receipts were down 74% on the day.

A banking group that just three months ago was touting its “ESG [environmental, social and governance] transformation” at a glitzy investor event and promising to lead the development of sustainable finance in Russia is now a global pariah.

Excluded from the US financial system, about to be cut off from Swift, its remaining assets in the EU frozen by the European Central Bank to prevent outright failure – it is hard to imagine a more total reversal of everything Sberbank has achieved over the past 15 years. Even its website is down.

A couple of months ago, Moscow’s financiers were secure in the knowledge that they were part of the global financial community. Today... they might as well be in Tehran or Caracas

This is not to criticize any of the above actions. Those taken by the international community have been an entirely proportional and necessary response to the aggression unleashed on Ukraine by the Russian regime.

But still. So many years of work. So many investor days, roadshows and forums. So much time and money spent on market infrastructure, on wooing foreign fund managers, on giving Russians the most sophisticated digital banking in Europe. All destroyed for the sake of a mad, revanchist nightmare.

A couple of months ago, Moscow’s financiers were happily attending ESG conferences, discussing IPO prospects and touting their latest tech wizardry, secure in the knowledge that they were part of the global financial community. Today they are facing the dismal reality that, as long as the Putin regime lasts, they might as well be in Tehran or Caracas.

As missiles rain down on Kharkiv and Russian troops advance on Kyiv, many will consider that executives at state-run or state-adjacent companies in Moscow bear at least part of the guilt. It is not an unreasonable argument. But it is, nonetheless, an appalling waste.

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