Evolution of the Banking Sector in Russia

Changes in Number of Credit Institutions in Russia
Changes in Number of Credit Institutions in Russia

CEIC Russia Data Talk: The Russian banking sector landscape has changed rapidly over the past two decades. While the number of credit institutions proliferated during the early 1990s, many of these institutions were subsequently driven to bankruptcy. Absence of necessary banking regulations during the transition period to the market economy in the beginning of the 1990s, unpreparedness for the new economic reality together with clumsy government interference and the ongoing economic crisis generated significant risks. As a result, many banks went bankrupt and a significant number of people lost their savings. The situation changed in the beginning of the 2000s, bringing stabilization and shaping the current state of affairs in the Russian banking sector. According to the Central Bank of Russia, the number of credit institutions shrank from 1,686 during January 1998 to 1,314 institutions during January 2001. As of April 2013, this figure had shrunk further to just 955 operating credit institutions, comprising 895 commercial banks and 60 non-banking credit institutions. To date, 2,061 credit institutions have been liquidated, mainly due to license cancellation (bankruptcy) and corporate reorganisation, especially due to takeovers. These takeovers come in two forms, namely transforming the acquiree into a branch for the acquirer or by absorbing the acquiree without creating a branch. These data reveal two main tendencies. Firstly, there was high turnover in credit institutions from the 1990s to the beginning of the 2000s. This has since slowed over the past decade with the number of insolvent credit institutions growing by just 1% year-on-year from 2010 to 2013, indicating the relative stability of Russias banking system. This was further reinforced by the lack of significant spikes in bankruptcies among credit institutions during the 2009 financial crisis as the banking system emerged more resilient from its experiences during the early 2000s. Secondly, consolidation of the banking industry has resulted in bigger and more robust credit institutions as they expanded via mergers and acquisitions. Credit institutions grew in size in terms of assets and became less numerous. The number of credit institutions with the largest amount of authorised capital has shown positive growth in the past three years, as opposed to the number of credit institutions with the lowest amount of capital, which were in decline during the same time. As of April 2013, the number of credit institutions with foreign stakes in their authorised capital accounted for approximately 25.76% of total operating credit institutions, a significant increase from 9.55% in December 2001. This highlights the increasing appeal of the Russian banking sector to foreign investors. There has been a major increase in the number of credit institutions with foreign capital from May 2005 to October 2009, peaking in October 2007 during an unprecedented growth in the Russian economy. Moscow is home to 501 credit institutions as of April 2013 and remains the major investment destination, constituting more than half of all the credit institutions operating in the country. There has been gradual evolution of the banking sector in the past 20 years towards consolidation of banking assets within big credit institutions during their mergers and acquisitions, and stabilization of the banking sector. Consequently, the number of credit institutions has gradually diminished and they have gained more public trust. Following the current trend we might see further enlargement, with potential expansion of foreign credit institutions on the Russian market given the favourable economic situation and Russia’s entrance into the World Trade Organization, which has removed some barriers. The development of new banking services and further spreading of the banking sector into the Russian regions are also possible benefits of the developments in the sector. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By Alexander Dembitski - CEIC Analyst Back to Blog

12th June 2013 Evolution of the Banking Sector in Russia

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