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Mon, Oct 30, 2006 - Page 10 News List

Foreign financial institutions lining up to enter Russia


Foreign banks are streaming into Russia, undeterred by risk and government pressure on foreign investors in the energy sector, executives and analysts said.

"You have to take some risks. That's what banking's about," said Vincent Falcoz, corporate secretary of Rusfinance, a subsidiary of France's Societe Generale that specializes in consumer credit.

Societe Generale is just one of a series of foreign banks that have unveiled ambitious plans in Russia in recent months. Others include Citibank, Commerzbank, Raiffeisen International and Unicredit.

Last month, European Banker, an industry publication, reported there are now 138 credit institutions with some level of foreign investment in Russia and 46 Russian banks that are fully owned by foreign lenders.

Industry insiders say the main advantages are rising incomes among Russians, better laws and the fact that the sector is still relatively underdeveloped compared to a saturated European market.

"The key area is retail lending ... In nominal terms, this is a market that shows 90 percent year-on-year growth," said Natalya Orlova, a banking analyst at Alfa Bank in Moscow.

Even though it has kept a ban on foreign banks opening branches here, Russia has welcomed foreign investment in banking, which is not considered as politically sensitive as the country's vast energy reserves.

But observers see disadvantages in Russian banking, including poor transparency, a cumbersome bureaucracy, low rates of capitalization and a legal system that still has a long way to go.

"The biggest drawback is the legal system whose outcomes are not always predictable and not necessarily based on the law," said Johannes Jonach, CEO of Raiffeisenbank Austria, which recently bought up Russia's Impexbank.

The riskiness of the sector was put into sharp relief last month when Andrei Kozlov, deputy head of the Russian central bank and the country's top banking enforcer, was shot dead in Moscow.

The instigators of the murder have not been identified but few here doubt that the killing was linked to Kozlov's work in rooting out criminal banking activities.

"He was an uncompromising man. His duties included monitoring the legality of Russian banking. Therefore he could have had quite a few enemies," Yury Chaika, Russia's prosecutor general said after the murder.

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