The Financial System of Russia
The financial system of every country is a very significant contributor to the economic development of a country. It facilitates financial intermediation, payment processes and other finance –related services such as transfer of funds, provision of capitals and loans, risk management, insurance services and investment management in a formal and regulated manner, ensuring a well-managed flow of financial resources. The objective of this paper is to evaluate the financial system of Russia and compared it with other country’s system in order to determine the roles and effectiveness of Russia’s financial system.
Structure of the Financial System Generally, a financial system consists of commercial and cooperative, the central bank, non-bank financial institutions, organised financial markets and relevant regulatory and supervisory institutions (Schmidt & Tyrell, 2003). By 2003, there are about 1300 commercial banks in Russia, most of which can be found in Moscow and St. Petersburg. Sberbank, one of the state-owned banks in the country, is the largest bank n terms of total deposits and total loans.
Vneshtorgbank, another bank owned by the state, is second to the largest in terms of total loans. The Central Bank of Russian Federation enjoys independence and like other central banks, it is the centre of Russia’s financial system. Its function includes organising money circulation, money regulation, supervision and regulation of commercial banks, formulation and implementation of monetary policy, foreign economic activities, and regulation of activities of joint stock cooperative banks (CBR, 2006).
Other non-bank financial institutions are insurance companies, investment intermediaries, collective investment institutions and financial markets with small players like trading floors, and discount houses. In 2004, Insurance companies achieved significant success due to the revised Federal Insurance Law implemented at the beginning of the year (CBR, 2005). The Banking System of Russia The banking system of Russia is still at its recovery after the financial crisis in 1998. In 1995, before the crisis, there were about 2600 banks across Russia but almost or more than half of these banks did not survive the crisis.
Banks sought the support of the state thus many of the banks today, including the largest ones are state banks and more than 30% of the total assets of the banking system are owned by the government (Kommersant, 2004). Therefore, the banks in Russia are classified as state-owned, private commercial and foreign owned The state-owned savings bank, Sberbank with more than 20,000 branches across Russia, is the largest bank in Russia which held 76% of all household deposits and accounted for 30. 4% of credit extended by the banking system to the real sector of the economy (Nieminen, 2002).
Other state banks include: Vneshtorgbank, Rosselhozbank (the agricultural development bank), Russian Bank of Development, and Roseximbank. Out of 1300 banks in Russia, the government declared that the national and regional governments directly and indirectly through state-controlled enterprises held majority and minority stakes in 800 banks (Standards and Poor’s, 2003). Private commercial banks in may be local and foreign owned. Table 1 & 2 shows the top local commercial banks and the top foreign banks respectively.
Unlike the state-owned banks, both the private and foreign-owned banks do not have branches nationwide because of the limited services they can offer unlike other international banks in the world. Private sector banks operate with less than US$10million in capital and cannot be able to lend large industrial companies thus they tend to concentrate to and depends on the funds provided by single or household clients (Standard & Poor’s, 2003). In 2001, there were about 150 foreign banks in Russia with foreign capital equal to a market share of 7. 5% (Nieminen, 2002).