Alexei Kudrin, minister of finance for the Russian Federation, has announced that 2005 will be the “year of transparency” as the banking sector moves to meet international information standards and improve its openness. Speaking at the presentation of The Banker’s Top 50 Russian Banks in Moscow, at a ceremony held in conjunction with Russian magazine Itogi, Mr Kudrin said transparency is one of the main principles of his work.
“I believe that in the banking sector, the principle of openness and transparency, the comparability of financial results and the adoption of international accounting standards (IAS) will be key factors. In the past, we have indulged in self-criticism for inadequate banking reform, for lack of consolidation of banking assets – all this is true. Adopting IAS will become the most important challenge of 2005.
“Of course, we will only see the results of this in 2006, when the banks release their 2005 annual results. That is when many banks will have to clarify their results and find out their real place in the banking scene,” he said.
Consolidation is necessary
“Today, this increasing need for transparency creates the necessity for banks to consolidate their assets, pursue mergers and acquisitions, and increase their capitalisation so that they can be ready for this moment, the introduction of IAS, and show their sustainability and real potential,” said Mr Kudrin.
Commenting on The Banker’s Top 50 Russian Banks listing, he said: “This ranking will take up a distinguished place among other highly regarded rankings. Incidentally, some of them I use regularly, and I hope The Banker’s ranking will also become as highly regarded as those which I use in my everyday work.”
Discussing the future role of the state banks that occupy two places in the top 10 banks, the finance minister said: “The government will not renege on its plans for the gradual privatisation of the leading state banks, because I believe that private initiative, independence from the state regulator, is the main factor in stimulating competition.”
Addressing more than 80 senior banking executives Mr Kudrin said: “2004 was a key year in adopting a number of decisions to promote competition in the banking sector. First was the deposit insurance guarantee scheme and other related decisions. This goes alongside the adoption of IAS and new bankruptcy regulations. This is why we are determined to increase competition in the banking sector, and this is why the government will gradually withdraw its stakes from state banks. 2004–2005 will also be marked by major reforms, which, after the completion of licence selection, will operate within the deposit insurance guarantee scheme.
“While there has been a certain amount of nervousness, which we all experience, this shows that bankers see these reforms as important, and this is another stage in testing the whole banking system. All these changes will take the banking system on to a new qualitative level,” he said.
Reform can overcome mistrust
Referring to the nervous market conditions in the summer of 2004 – which were followed by withdrawal of some banks’ licences and uneasiness by the banking community – Mr Kudrin said: “The bankers started treating themselves with certain distrust, which we observed in their lending business. This shows the lack of understanding and transparency in financial institutions. This means that there was a great deal of mistrust that can be overcome through serious reform and introducing certain standards and transparency.
Alexander Zakharov, deputy chairman of the board, Sberbank, (left) with Alexei Uliukayev, first deputy governor of the Central Bank of Russia
“We need to have a situation in which we can all feel confident that a particular bank is completely clean, stable, has no fictitious capital and has a completely clear asset structure and absolutely clear business activities. Then any licence withdrawals and crises will not be a cause for concern for leading Russian banks. This is an important moment.
“We cannot criticise the central bank [on the grounds] that the reforms are not going fast enough,” he added. “On the contrary, the central bank is trying to contain this process as it does not want to make any rapid moves in introducing long overdue measures to clean up the banking system. I am confident that the central bank is taking into account this summer’s lessons and will be able to complete this task without any more emotional outbursts on the market, which as in the case of this summer were, I repeat, emotional outbursts, reflecting certain distrust, and not a real destabilisation of the whole banking system. This is why we have to pass this important process in a normal way.”
Effective response
Also speaking at The Banker presentation, Alexei Uliukayev, first deputy governor of the Central Bank of Russia (CBR), said that 2004 showed that the Russian banking system could respond effectively to the various challenges it faced. “The new laws regarding currency controls symbolise the beginning of new banking services that reflect a new market reality. Our summer experience shows that the banks assessed correctly the necessary levels of liquidity,” he said.
“The whole banking system is facing a serious phase in assessing its credibility and viability as it prepares to enter the deposit insurance guarantee scheme. Banks are becoming more responsive in their relations with the regulators, and they are now more capable of improving corporate governance and are more willing to reveal their owners and meet transparency standards,” said Mr Uliukayev.
Alexei Uliukayev (left) with Alexei Kudrin
“This year’s results are expected to be reasonably good from the perspective of capitalisation, and the ratio of Russian banking capital to GDP is also reasonably good – as is the growth in corporate loans. Putting aside the raw statistics, there is distinct sense that the banking sector is on the rise,” he added.
“The regulators may be slightly behind this positive trend but the view from the CBR and the government is that we need to issue clear guidance and strategy for the banking sector. This strategy has been in the making for far too long and the CBR must do everything possible to ensure the credibility of the banking system which is our role. We can achieve this through creating liquidity in the banking sector. This allows us to look forward to 2005 with cautious optimism. The Banker’s listing is an important part of ensuring transparency of the whole banking system for depositors, lenders and investors.”
