Viktor Gerashchenko, chairman of the Central Bank of Russia, talks to The Banker about his country's main economic challenges.
The Central Bank of Russia (CBR) has majority stakes in Sberbank, Vneshtorgbank (VNT) and Vnesheconombank (VEB). When are these going to be sold?
The 1990 law that defines the status of the CBR says clearly that it should not have stakes in other banks. But in the 1990s, Russia was in the position where there was no other state institution capable of providing these banks with capital and representing the state's interests. So in 1995, the CBR law was amended to allow us to supervise these banks until 2000. By then, we were supposed to have divested all our shareholdings in both foreign subsidiaries and in these banks. Unfortunately, in 1998 the financial crisis intervened.
We still believe that we shouldn't be shareholders in all these banks. But, in conjunction with foreign authorities, we are trying to find a decent way to sell these shares. After the 1998 crisis, we need to find shareholders, not just one dominant shareholder; we have had too many of these before. It should be a wide base of shareholders with a certain quality and history.
VNT has a future working with companies that carry out foreign trade [its original function] and now also as a bank involved in domestic commerce. The next step is to push VNT through privatisation. But we shouldn't do it before we have resolved the problems with [the CBR's] foreign subsidiaries.
What is the timescale for selling all these banks?
At a wild guess I think we could dispose of our foreign subsidiaries this year, if the Duma [Russian Parliament] does not insist - and some of the deputies there are already insisting - that we should keep a 51% stake in Paris, London and Frankfurt. They are just saying the CBR should not do anything without the Duma's consent. They do not have any practical or logical reasons. They could ask us to reform, but to gain consent from the Duma at which price to sell - it is a mission impossible. There are 450 members and it is hard to get them all to agree.
While we are already discussing this problem, and will discuss it with international experts, we still need to handle the question gently. It is not just a bureaucratic excuse to delay the decision.
State banks are increasingly dominating the sector and enjoy an unfair advantage from a deposit guarantee - the state guarantees the deposits of any banks with more than 50% state participation. Will this be extended to cover commercial banks as well? Don't forget that in the past 10 years, the population of my country has already been robbed twice. First during the price liberalisation of 1992-1993. They lost everything then. And the second time was in 1998 [during devaluation]. Only the people who had their savings in Sberbank did not lose money through the problems that banks faced. I do not think deposit guarantees for the commercial banks will be introduced. We have already been discussing it for six years. In the beginning, it was the oligarchs who resisted this type of law. They were not willing to pay extra for this system. They thought they would be capable of attracting money from the future middle class and they would be well able to compete with Sberbank.
If, for example, we say we are withdrawing from Sberbank in six months to one year, I do not think that the public will feel comfortable and Sberbank will lose some money - not all, but some.
VNT recently overtook Sberbank as Russia's largest bank in terms of assets. Is the state's dominance not bad for developing a viable banking sector?
I agree that any state organisation has a tendency towards bureaucratisation. But the population believes at any organisation with state participation may be, while not the most efficient, the most secure.
I think we need to look at the problem of [the strong position of] Sberbank as a temporary one. The capitalisation of the commercial banks needs to be increased. Some people believe that this push is premature. Many shareholders are not ready to do it, especially since the banking business became less profitable. They need time for adjustment. For example, some in the business community say VNT works too slowly, as they are used to working with the state. In this case, I could agree that relying on state banks is not the best way to develop the system. But we are coming through a transition period.
The chairman of Sberbank said earlier this year that state banks will dominate for between five and 10 years before the state sells out and hands over to commercial banks. Do you agree? Maybe five, but maybe three. It will depend on how they work. I believe that Sberbank needs to be developed as the main institution to stimulate construction. First, it needs to be involved, first of all, in the process of providing loans for housing construction and connected with sectors of the economy such as the construction of planes and infrastructure.
For me it was obvious at the beginning of the 1990s that it was necessary to create a local bank for reconstruction and development and do it maybe on the basis of Stroibank, which was a bank with knowledge of the real economy. But the licence was given to people without any specific knowledge [of banking] on the basis of personal relationships.
As for The Bank of Agriculture [Agroprombank] this idea exists in many countries, but this kind of bank in other countries is not so heavily subsidised as it was here. To sell this institution to Stolichny Bank was a stupid decision in the mid-1990s. For the transition period, deregulation cannot happen everywhere. Even in the distant future, as in The Fifth Element, a film I saw recently starring Bruce Willis, traffic regulation will still be in force.
Is restructuring too slow? For example, there are still no IAS [international accounting standards] accounts, which have been promised for years. IASs will be introduced here as well, but the banks need them not because the present accounts are wrong, but rather because IAS is necessary so banks here can have a balance sheet that is readable by the Western banking community. At the same time, I do not believe that tomorrow the western banking community, after reading a transparent balance sheet, will be ready to work with them. Not because the balance sheet is unreadable, but for other reasons.
One of your deputies said that if IASs are introduced, then one-third of Russian banks would instantly go bust. She is right in the sense that these banks have a very small capital base. But, again, she is taking into consideration several factors - that certain legislation will be passed by parliament [an IMF-sponsored package of bank legislation is currently being discussed by the Duma] and we have been talking about these laws since the middle of 1999. The small banks are not the main worry for us. We are not aiming for any kind of target - we need 5000, or 1000 or 500 banks - we are still working under the presumption that it is a sector of the economy that needs to be supervised, where certain rules need to exist according to the international standards, and according to the local possibilities. For example, if we create the capital requirement of e20m, then only five banks would pass it.
The CBR has constantly been accused of not regulating enough. For example, following the crisis, many household names were able to transfer assets to new parallel banks with impunity. The Russian banking community is learning fast. The trickiest banks were playing this new bank/old bank game. It was an idea that was imported from abroad. Taking into account the legislation at the time, we as the CBR were unable to do anything. Let's be careful. There is legislation that says if there is a dubious or false deal where the assets are shifted six months before bankruptcy proceedings started to take place, then the assets should be shifted back. Arco [the agency for restructuring credit organisations] is trying to do this with SBS Agro. But in those days this legislation was not in force. It is not just the CBR, but credits (often foreign credits) were involved, but why didn't any of the [foreign creditors] take legal action? Because there was no legal basis to act. That is why they were pushed to negotiate.
You can go faster if you want. There was enough legislation. What about the IMF package? I am not a member of the Duma. We at the CBR have no authority in accordance with the laws to go to the Duma on our own initiative. Usually it is the government and often the ministry of finance that introduces the ideas. Comment has often been made that the IMF is criticising us; but they have not made any criticisms for about half a year.
Will there be an easing of currency controls? Definitely. Some deregulation and de-bureaucratisation is necessary. But it should go along with the new draft laws being discussed now about currency regulation and control. And it should go together with the law introduced to the Duma that deals with money laundering, but I do not think this will be done quickly.