Russian Bank Decree Excludes US
The move to allow EU banks access to commercial market reverses 1993 ban
RUSSIAN President Boris Yeltsin has bowed to international pressure and granted foreign banks gradual access to Russia's burgeoning commercial-banking market. United States banks are being left out in the cold, however.
The move reverses a decision Mr. Yeltsin made in November, when he revoked licenses of foreign banks and froze their entry into Russia until 1996. He also imposed offshore status on licensed foreign banks and barred them from dealing with Russian clients. The restrictions were imposed before the December parliamentary elections at the urging of the commercial-banking lobby, which feared competition from Western banks. But what was conceived as a way to gain political support has turned into a battle over reciprocity.
The June 10 decree affects only foreign banks from countries in the European Union (EU), which has a reciprocal investment protection pact with Russia. The decree could pose problems for US banks that want to do retail banking business here.
The US is ``disappointed'' the decree doesn't apply to US banks, the US Embassy here noted Tuesday. The US says it already gives foreign banks with operations in the US equal treatment to American banks. But they must meet capital adequacy and other standards. It doesn't view a Bilateral Investment Treaty signed by both countries in 1992 as a ``relevant criterion'' for banks' entry into the Russian market, as claimed by Russia. It was ratified by the US Senate but not by Russia's lower house of parliament. ``Approval by the Duma will contribute to a more favorable investment climate and encourage US companies to invest in Russia,'' the statement said.
Russian Deputy Prime Minister Alexander Shokhin charges that Russian banks are barred from operating in the US and, therefore, US bankers would be barred from doing full-scale business here. ``If it turns out they are from those countries with which we have full reciprocity ... then, in essence, these banks ... and only these banks, can have their licenses restored,'' he said.
The decree is seen as a victory for European investors. It may spur the signing of a cooperation pact when Yeltsin visits Corfu, Greece, for an EU summit today and tomorrow. ``Definitely, the attractiveness of signing the European accord is a lot more important than giving up on these issues, both for Russia and for Yeltsin, politically,'' says Victor Huaco, head of the the American LTS Finance's Moscow branch. Twelve banks received licenses before curbs were implemented, and six are now exempt: France's Societe Generale Vostok and Credit Lyonnais, the German-French venture BNP Dresdner Bank, Credit Suisse Bank, and Dutch ABN-Amro and ING Bank.
Five face restrictions: the Turkish Yapi Credi Bank, the Russian Turkish Bank, the Bank of China, and the US's Citibank and Chase Manhattan. Restrictions never applied to the Bank of Austria, as it operates only a branch restricted to offshore business.
``We want to be certain that the [US] banks are treated in an equal and fair way as it may apply to European or other foreign banks,'' says Joe Condon, executive director of the US Chamber of Commerce in Moscow. ``Both [US banks] ... are very actively involved in all kinds of banking here,'' he says. ``We feel it is very important that the Russian banking system be modernized and transformed into a normal banking system performing normal commercial banking services.''
Citibank and Chase Manhattan officials in Moscow declined to comment.
WHILE more than 2,000 Russian commercial banks have opened over the past few years, few have the technology to facilitate electronic transfers and other transactions that most foreign banks take for granted.
``Russian bankers will criticize the president because we are starting real competition. There must be gradual, cautious involvement of foreign banks in our commercial and financial life,'' Yeltsin said at a press conference announcing the decree. But it is doubtful that the anti-Western Russian banking lobby's fears are justified that foreign banks intend to take control of Russia's commercial-banking system.
Alexander Chesnokov, general director of Credit Lyonnais in Moscow, told the Interfax news agency that foreign banks had only a secondary role to play in Russia, and that fears about foreign competition usurping the Russian market were greatly exaggerated. Russian banks would do best to improve the quality of services to both Russian and Western clients, he said.
Foreign banks ``will not do retail banking in the near term. They are doing business only with large corporations, and there are only a handful of them. They will not be doing business with the average person in the street in the next three or four years,'' Mr. Huaco said.
Central Bank Chairman Viktor Gerashchenko has supported the lifting of restrictions but has emphasized that foreign access to Russian banking will be strictly controlled. Moscow still retains barriers protecting Russian banks from a potential foreign invasion, including a 12 percent ceiling on the foreign banks' share of overall capital in Russia and a minimum deposit requirement.
``The development of the entire modern banking system in the world, where each country sooner or later arrives at precisely this decision, speaks in favor of opening national borders to foreign banks,'' Mr. Gerashchenko told Nezavisimaya Gazeta on Tuesday.
Some observers say the restrictions did little to impede bank activities. Only Credit Lyonnais and the BNP Dresdner Bank started doing business with Russian firms and clients. Credit Lyonnais established a retail office before the restrictions took effect. Its transactions with Russian clients for rubles had continued despite the rules.