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Too many banks doing too little

Russia’s banks, compared with those in other developing economies, are making a meagre contribution to economic growth. The big corporations, such as Lukoil, have their own banks, and banking institutions in which the state has a stake are beginning to dominate the rest of the sector. Most of the commercial banks are puny, the survivors mostly being those that were too small to wreck themselves in the GKO market crash. That means they have been able to do little by way of lending to smaller businesses.


"Russia is an amazing place. Here, state banks act like private banks and private banks act like - and even claim they are - state-owned banks." This comment made at a recent investment conference sums up the confusion in Russia's beleaguered banking sector. The economy is growing and dragging the banks with it, but Russia's banking sector has barely moved on since the survivors of the 1998 crisis picked themselves up and sorted through the debris of a collapsing financial system.

Over the past two years, three groups of banks have emerged to take the lead in Russia's new banking sector: pocket banks of the big industrial companies, the leanest of the commercial banks that weathered the devaluation storm, and banks that are state-owned.

A lean year in 1999 further whittled down the number of competitive banks: the top 50 account for 80% of all loans and 65% of all deposits.

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