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The credit crunch heads east: Russian banks prepare for battle

Just as banks in Russia were beginning to resemble their peers outside the country, engaging in conventional retail and corporate banking, the western financial market crisis hit. Reduced availability of long-term funding from abroad highlights the shortage of such a market in Russia and reveals a systemic vulnerability. Will this help state-owned banks, which had previously been losing market share, turn the tables on their privately owned rivals?

Inflation, not liquidity, is the real problem


NO DOUBT IT is the boomtown traffic clogging Moscow’s wide roads that suggests the simile to the senior Russian banker. He has abandoned his car and arrives for the meeting with Euromoney short of breath and sweating from the brisk walk in the spring sunshine. "The financial system may slow or even stall in Russia but there’s one fast lane that is still open – and that’s for the state-owned corporations and banks to speed along. They still have access to free money."

As a private-sector banker, it’s not a situation he approves of. People and institutions that have been administered a course of free money grow dependent on it: it will be the source, he suggests, of, at worst, corruption, at best, misallocation of funds into unproductive investment. But it’s a fact of life in Russia. The state has got its power back: and that applies to the banking industry just as much as to oil.

Watch out for Russia’s state-owned banks. The crisis in western financial markets has handed them a huge advantage in their own large and fast-growing home market – one that until last August seemed ripe for foreign banks and private-sector players to exploit.