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Slow pace of bank reform holds back loan growth

After a year of inactivity, banking reforms in Russia are moving again. The weak are being weeded out and with new regulations on mergers in the pipeline, consolidation of the country's 1,300 banks is imminent. Ben Aris reports.

MORIBUND FOR A year, Russia's banking reform began to move again by the end of 2003. It is being driven more by rising competition as bankers scramble to get a piece of the burgeoning retail business than anything the government has done.

The ball started rolling in December after the Federation Council, the upper house of parliament, finally signed off on the laws that underpin the deposit insurance scheme, the cornerstone of the Central Bank of Russia's (CBR) reforms.

Andrei Kozlov, the CBR first deputy in charge of banking sector regulation, said that the first contributions to the fund, which will eventually insure depositor's accounts against a bank's failure, will be paid in this year. The CBR has still not decided who will be eligible to join the scheme.

All banks applying for the scheme will have to undergo stringent inspections and any bank that is excluded will automatically lose its right to take retail deposits.

Consumer lending is the fastest-growing bank businesses. Only 11% of Russians have ever taken out a loan, according to Alfa Bank's deputy CEO Oleg Tumanov, and every bank with retail aspirations has piled into this potentially lucrative business.

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