Conference examines banking sector's health (05/09/99)

Conference examines banking sector's health

Eastern Economist

YALTA, Ukraine - "CIS countries' banking systems are at least 20 years behind those of such countries as Greece and Portugal, and far further behind Germany and Austria," said Istvan Lengyel, secretary-general of Banking Association for Central and Eastern Europe.

He spoke at the seventh annual Interbank Conference held here on April 26-29. The conclave attracted 330 top managers of Ukrainian, Russian, Belarusian, Baltic and several Western banks.

The Russian financial crisis was central to their discussions. For Russia, the most obvious change is that some of the smaller banks have grown into major players. "They were simply not involved in GKOs [Russian treasury bills on which the government defaulted last August]," said Viacheslav Zaharov, executive vice-president of the Russian Banking Association. "Now many enterprises are switching their accounts to them [from big banks]," he added. Some of the smaller banks are actively raising capital and could soon grow into new giants, Mr. Zaharov predicted. Meanwhile, many of the less fortunate will soon go out of existence.

Out of the 1,473 banks in Russia on the eve of the crisis, 440 are no longer functioning. Banks that were biggest prior to the crisis are now in most trouble. According to World Bank research, of the 18 biggest Russian banks, only three have sufficient capital. According to Mr. Zaharov, Russian banks have lost 60 billion rubles ($10 billion U.S.) at the pre-crisis exchange rate, about half their capital. In order to rebuild the system, approximately 75 billion rubles ($3 billion U.S.) are needed.

All this has made foreign investors look more closely at other CIS countries whose economies have suddenly started to look more healthy than Russia's. "More of our clients have switched their interest from Russia to Ukraine and Kazakstan, because the [banking] system in Russia has become very discredited," commented Richard Hainsworth, director of the Moscow office of Thomson Bankwatch, a banking rating agency.

Ukrainian banks are mismanaged, claimed Borys Krasnianskyi, a partner at the Kyiv office of PriceWaterhouseCoopers. "Only a few banks have clear strategies," he said.

Oleksander Dubilet, the head of board of directors of Dnipropetrovsk-based Privatbank, was bleak in his summary: the Ukrainian banking system looks to be in better shape than its northern neighbor's primarily because "it was simply not mature enough to make the mistakes the Russians made."

Meanwhile, the Baltic banks are looking to the north and west. In Latvia, for instance, only 16 percent of banking capital belongs to totally domestic banks. Most of the foreign banks that have become owners of domestic banking institutions are from Sweden, Finland, and Germany - Latvia's biggest trade partners.

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