Unfair Competition

Foreign banks are slowly exiting the Russian market, as domestic banks such as Sberbank and VTB expand (the former posted a sevenfold profit increase of $6 billion for 2010 earlier this week).  This is at least partly to do with currently slight market growth, but the ‘tremendous domination‘ of Russia’s own lenders is not helping matters, at least not whilst the banks are still under state control.  Catherine Belton writes in today’s FT: 
[A]s VTB and Sberbank ramp up operations, the danger is that their state backing leaves little room for other banks.

“No one can explain the objectives of the further expansion of the state in the banking sector,” says Oleg Vyugin, chief executive of MDM Bank, Russia’s biggest private bank, and a former deputy central banker. “There is no economic reason for this. They got substantial capital injections from the state during the crisis. Their liability costs are about 2 per cent less than for private banks and they have the absolute guarantee from the state from attack.”

Mr Vyugin says the only saving grace preventing the departure of private banks from the sector so far was that the Russian banking market was still under-penetrated compared with other countries.

But, he added, “the growth of the state in the sector is a movement backwards. Only fair competition is the source of sustainable growth and can guarantee the growing quality of services in the banking business.”