Russian Money Market & Bank System: Problems

News
and photos from the Moscow
News (07/06/2004)



(by Marina
Pustilnik)

May 2004 may go down in the history of modern Russia
as the time
of the country’s
second banking crisis, the first one being in August 1998,
when a state default led to a damaging
financial crisis.



For the first time since 1998, the Central Bank of Russia
has used its authority to recall a general banking license
from a relatively major bank. On May 13 CB announced that
it was recalling the license from Sodbiznesbank on accusations
of money laundering and sponsorship of terrorism. And while
the deputy chairman of the CB Andrei Kozlov was quick to
call this case “unique”, the head of Federal
Financial Monitoring Service, Viktor Zubkov, was also quick
to add that his agency has a list of another ten banks that
may be accused of similar violations.

The bankers jumped on the chance to play the guessing game
of which other financial institutions may be on the list.
The first blacklists of possible candidates for liquidation
began to circulate around the financial community in the
middle of May, and with time has grown in number and details.
But as one of the bankers told Vedomosti business daily,
back then it really was more like a conspiracy.



The situation was aggravated when the CreditTrust bank also
found itself facing serious problems. The rumors that CreditTrust
has the same owners as under-fire Sodbiznesbank were enough
for scared clients to rush the bank’s offices in an
attempt to pull out their deposits. As a result on June 2
CreditTrust failed to pay back investors who wanted to redeem
the bank’s bonds ahead of time and on Friday, June
4, an announcement was made that CreditTrust had decided
to liquidate itself.



Russian bankers were then hit with an acute panic attack.
The blacklist circulating in the community has grown to include
several dozen banks, including several market leaders. The
banks began to reduce limits on each other, provoking an
acute shortage of inter-bank credits. “Officially we
have not closed limits on anyone, but there is a number of
banks that we are watching closely,” said vice president
of Avangard bank Konstantin Zyryanov. “The situation
is clearly panicky,” deputy chairman of OrgresBank
Igor Bulantsev, told Vedomosti . “I don’t remember
seeing anything like this in the last five years since the
[1998] crisis.” A Guta Bank official said that the
banks are trying to hedge their risks and see out the unease.

The turnover volume on the inter-bank credit market has dropped
by two or three times. Zyryanov from Avangard even said that
banks are afraid to part with their money, and have already
reduced the number of loans given to enterprises and regular
consumers.

The credibility crisis which has hit the banking community
has surprised and discouraged state officials. “The
Federal Financial Monitoring Service has no blacklist,” said
Viktor Zubkov, the head of the agency. A similar announcement
was made by Russia’s Interior Ministry on Monday. The
deputy interior minister said: “The Interior Ministry
has no such list. We have no plans to persecute any banks.”



“
There are banks, to which we have some claims, but there
are no money laundering institutions like Sodbiznesbank used
to be.” Andrei Kozlov, deputy chairman of the Central
Bank, speaking at a press conference on Friday advised bankers
to “take a rest and clear their heads”.



On Monday, meeting with representative of 25 Russian banks,
the CB official said: “There are no fundamental economic
grounds for concern.” Kozlov also stressed once again
that the situation with Sodbiznesbank was unique and that
the Central Bank of Russia has no plans to provoke other
such situations. Commenting on the fluctuations on the inter-bank
loan market on Friday, Kozlov said that the Central Bank
of Russia will refinance commercial banks to the necessary
levels of liquidity if the inter-bank loan market continues
to decrease.



The coming week will be definitive for the financial market,
bankers agreed. Igor Bulantsev from OrgresBank told Vedomosti
that he hopes for the best, but acknowledged that the situation
may get even worse. “The clients are scared and if
they begin to pull their money out, we may be faced with
a mini version of the 1995 crisis [when another large scale
banking crisis occurred in Russia],” said Bulantsev.
He was echoed by Richard Heinsworth, general director of
the RusRating agency , who says that if the panic is not
transferred to the clients, the market will slowly get better,
but if regular citizens begin to pull their money from banks,
the future development of the situation may quickly become
unpredictable. Viktor Zhidkov from MDM-bank said: “If
within the next two weeks no other candidate for liquidation
appears, the credibility crisis will resolve itself over
time.”

Meanwhile the morning news from the Moscow inter-bank loan
market were disappointing. The interest rates on inter-bank
loans have been growing, and the market participants have
already said that Central Bank intervention may be necessary
before the situation gets out of hand.