Gerashchenko Invites Foreign Banks to Increase Presence in Russia

Issue Number: 
The Russia Journal

Central Bank head Viktor Gerashchenko wants to increase the number of shares foreign investors can hold in the charter capital of Russian banks. Currently, the limit is set at 12 percent. But there are indications that it will soon be raised to between 20 and 25 percent.

Gerashchenko said last week: "The Central Bank considers it possible to allow an increased presence of foreign capital in Russia's banking system. I do not see anything wrong in a foreign bank's presence attracting hard currency from the Russian population and investing it in the country."

According to the Central Bank's leadership, it is quite realistic and even desirable to allow foreign banks to service individual clients in Russia. The latest version of the law "On Banks and Banking" limits foreign shareholding in Russian banks under a special federal statute that can be initiated by the government upon coordination with the Central Bank. No such statute has been adopted yet, and the existing limit of 12 percent was fixed by the Central Bank before the latest amendment was passed. At the same time, the law authorizes the Central Bank to permit or forbid charter capital increases of specific foreign banks operating in Russia. Therefore, it is the Central Bank that effectively enforces the limit on foreign shareholdings in Russia's banking system.

The amount of foreign capital in Russia's banking system is very small. There are only 21 banks with 100 percent foreign capital and another 12 where foreigners own more than 50 percent. Combined foreign shareholding in Russia's banking system equals about 3.34 billion rubles ($130 million). According to Central Bank data, the share of foreign capital in Russia's banking system was 5.33 percent as of January 1, 1999, up from 4.13 percent in the corresponding period last year.