• ACI Russia

08/13/1998 19:21:36 ANALYSIS-Russian bank system seen surviving crisis

By Julie Tolkacheva

MOSCOW, Aug 13 (Reuters) - Russia's banks are running

scared, scrambling to boost liquidity and honour their debts,

but the central bank says the system as a whole is safe and

most analysts agree it will probably survive.

The local interbank market, squeezed by tight fiscal and

monetary policies, has virtually ground to a halt as some banks

defaulted and others, including major institution Inkombank,

pulled out of the market. An Inkombank spokesman said the bank

met all of its obligations.

Analysts said the market as a whole was characterised by

mutual distrust, although the problems were most likely


"The current problem is a problem of a lack of short-term

liquidity. I mean for several days," Andrei Ivanov, banking

analyst at Troika Dialog, told Reuters.

"It is not connected with any global problems of the

banking system, which cannot be solved in a short time.

Fundamentally, (big) banks are stable and they can meet their


Banks dumped government securities on Thursday in their

desperation for roubles, sending yields for short-term paper

through the roof. The stock market was also hit, with the

leading share index losing some 20 points so far this week.

But most analysts agreed the banking crisis was not fatal,

although the lack of international accounting standards and the

unwillingness of Russian banks to disclose information made it

difficult to assess the scale of problems.

In the mid-1990s, there were more than 2,500 commercial

banks in Russia. Now there are less than 1,600 and that number

is shrinking fast as the less solvent institutions are weeded


"My sense is that the number of banks that are actually in

trouble is not that large," said Margot Jacobs, banking analyst

at UFG. "But it is difficult to distinguish between real

problems and fear of problems."

But Tatyana Tsynkush, a fixed income analyst at Alfa-

Capital, said the problems were serious.

"I think this is a systemic crisis, fraught with thebankruptcies of the biggest banks," she said.

Russia endured one systemic banking crisis in 1995, when

several banks went bankrupt after heavy defaults on the

interbank market. But Ivanov said the local banks had grown

more mature, turning into real banks from a little more than

the brokerage firms they used to be.

Most of the big banks, such as UNEXIM Bank, MENATEP

<MNTP.MM> and Inkombank <IKMBy.BE> have set up financial-

industrial groups, where the banks serve the accounts of big

industrial companies. All of the biggest banks are carrying out

aggressive campaigns, trying to branch out into the retail


Jacobs said that between five to seven of the biggest banks

still get about 30 percent of their financing from the

interbank market, making the situation more dangerous. But she

added that the average rate of financing from the interbank

market was 10 to 20 percent.

Analysts said the problems started in the spring when the

government forced some big banks to pay overdue taxes for

companies in their financial-industrial groups.

The central bank took several steps to tighten monetary

policy, for instance stopping fixed-rate Lombard auctions and

cutting the credits to seven days from one month. The measures

were meant to force banks to sell dollars, but fears of a

rouble devaluation, along with a desire to get funds to meet

foreign credit and forward liabilities, made banks sell

government paper, pushing up yields.

At the same time, the measure deprived banks of the

possibility of arbitrage deals and squeezed the liquidity of

the interbank market, Ivanov said.

The central bank recently introduced overnight credits for

the biggest banks, but the banks failed to use them properly

because of poor risk management, Tsynkush said.

"What is happening now is in no way unexpected. It is a

result of tough measures by the central bank and the financial

markets' crisis," Ivanov said.

The central bank on Thursday relaxed somewhat its tight

policy by increasing the number of banks that have the right to

borrow overnight from it.

Analysts praised the decision.

"Today's central bank decision on overnight credits is an

effort to solve the problem in a softer way, without massive

bankruptcies," Tsynkush said.

Ivanov said that, although smaller banks could go as a

result of the crisis, big and medium-sized institutions would

stay afloat.

"The market is most likely to return to normal in a week,"

he said. "I think the central bank will keep the rouble from

devaluation in the next several weeks."

((Moscow Newsroom, +7095 941-8520


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