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Taking on the big two

Bank reform in Russia is hampered by the dominance of the two big state-owned banks, neither of which can be speedily rationalized or sold off without disruption. So although the central bank is now intent on regulatory activism it is seeking to enable competition rather than enforce it.

       

THE KREMLIN IS faced with a nasty problem. State-owned Vneshtorgbank (VTB) is the second-largest bank in the country and is not a great commercial success but needs to be. State-owned Sberbank, Russia's biggest bank, has become too successful and is squashing the rest of the sector.

These two banks sum up the problems the Central Bank of Russia (CBR) is facing as it makes the first ever concerted effort to reform Russia's ailing financial sector.

Between them the two state-owned banks account for over one-third of the entire sector's assets but the state can't get out of either bank quickly and their very existence is making reforms harder.

Ironically, the government is pitted against itself in trying to boost VTB's attractiveness. Despite its size it still only does about 4% of corporate banking business, on a par with all the other leading private commercial banks. Thanks to a big injection of cash after the 1998 crisis, VTB is overcapitalized and the state won't sell it off until value has been added.

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