Bankers vs Russia’s Central Bank

Alfa Bank has suspended its membership in the Association of Russian Banks, Realnoe Vremya reported last week.

The reason?

“The bank categorically disagrees with the text of the Association’s 2017 annual report.”

“The style of the report, accusing the Central Bank of cynicism, favoritism, working in the “military operations” mode, the deliberate reduction of the number of banks… undermining the stability of the banking system, as well as the suppression of competition, contradicts the spirit of constructive interaction and cooperation, which has developed between the regulatory authority in the face of the Bank of Russia and the healthy part of the national banking system.”

The report accuses the Central Bank of prioritizing “inflation targeting” over “GDP growth, employment, and the living standards of [Russian] citizens”.

As a result of the CBR’s actions, trust in the banking sector is deteriorating, the report also alleges.

Capital Flight

“…many large and even medium-sized organizations and wealthy citizens are concluding that it is necessary to keep large amounts of money abroad and obviously not in Russian currency.”

And:

“…most market participants note a delicately veiled favoritism towards a number of banks.

This, in turn, leads to a loss of confidence of all other market participants.

Seeing the growing requirements for the capital of banks, many companies also refuse to cooperate with those banks that do not have access to public [State] resources.”

The report continues by noting that:

In the end, the non-material damage in the form of erosion of confidence in financial institutions, and state policy are more important than the direct loss of money.

The report then offers alternatives to the easy out of revoking banking licences:

A top-down change in working strategy, changes in management, rehabilitation or sale of the bank to interested investors are complex alternatives to revoking the licence of a problematic bank. They are difficult measures. But they are needed to make the financial system of Russia not only stable but credible.

For instance, Italy has banks that are over 200 years old. In the 19th to 21st centuries, many of them went through obligatory change of owners and administration, rehabilitation, consolidations, and other procedures initiated by financial authorities. At the same time, they preserved their licences and continued working with clients.”

Too Big to Fail?

Meanwhile, S&P Global Ratings has also criticized Russia’s Central Bank for its actions regarding TatFondBank (Tatarstan’s second largest bank).

“First of all, we believe that the criteria used by the Bank of Russia in making a decision on financial recovery or revoking of the licence of troubled financial institutions have not been sufficiently transparent. We are not sure that the problem will be solved even after the introduction of a new rehabilitation mechanism. A recent example: the decision of the Bank of Russia to revoke the licence of TatFondBank was made, despite the high, by our estimation, significance of this financial institution for the banking sector of the Republic of Tatarstan.”

S&P also noted that:

“…Tatfondbank’s rehabilitation would require 100-200 billion rubles, and Deposit Insurance Agency granted loans of a comparable or bigger size within the financial rehabilitation of Bank of Moscow (294,8 billion rubles) and Mosoblbank (168,7 billion rubles).”

Alfa Bank

Alfa Bank is Russia’s largest private commercial bank, so it is no surprise that they sided with Nabiullina’s policies, Realnoye Vremya concludes.

“Emotions are emotions, but as business people in the West say, “Money loves silence. Big money loves grave silence”.

Alfa’s statement read in part:

“The bank supports the efforts of the regulator to clean up the banking system. To ensure a competitive environment, it is important not to allow unjustified differences in the regulation of private financial intermediaries and organizations with State participation.

Alfa Bank considers the proposals of the Central Bank of the Russian Federation on the proportional regulation of credit institutions to be justified. This is about the implementation of international approaches that extend the requirements of the Basel standards to large, internationally operating banks [like Alfa], and reduce regulatory pressure on small credit institutions. The practical task is to clarify the final legislative formulations and take into account the real commercial interests of all banking groups. This must be done in a calm and balanced dialogue, without loud slogans, accusations and labels. Thus, the Russian banking system must prove its maturity and readiness for change.”

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One thought on “Bankers vs Russia’s Central Bank

  1. Pingback: Otkritie Bail-Out – Nina Jobe

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