Top Private Commercial Banks
In 2004, the ratio of banking assets to GDP was 42. 5%, the ratio of household sector deposits to GDP was 11. 7% and the banking sector capital to GDP was 5. 6 % (CBR, 2005). As mentioned above, commercial banks’ activities are mainly concentrated and limited to deposits, funds, and personal loans of households as shown in figure 1 which indicates the concentration of activities of banks in Russia.
The Russian banking system can be traced back as early 1754 with its very first banks, The Gentry Credit Bank established in St.Petersburg and The Merchants Bank in Moscow. These banks functioned as lenders to land owners and the treasury of the Russian Government (Perspectives, 2003). Savings in the bank business only began in 1841 that led to the establishment of about 40 savings offices in major cities across the country to provide low income groups with access to an organised savings system (Perspectives, 2003). Private commercial banks also began operating that by the late 19th century, there were 39 commercial joint-stock banks with 242 branches (Perspectives, 2003).
It was also during this period that the development of capitalism emerged due to the industrial boom. Before the World War 1, Russia enjoyed a successful financial system with about 3575 banks with the State of the Bank controlling monetary policy and business Operations (Perspectives, 2003). After the war that the Soviet government launched the New Economic Policy and created the State Bank of the Russian Federation in 1921 that helped restore the economy and the State Bank reestablished joint-stock banks resulting to efficient banking system until the late 1980’s.
The banking system had undergone reforms including reorganisation of the existing banks into new specialised state-controlled lending institutions dedicated to specific economic sectors and in the 1990s, the creation of the two-tier commercial banking system: the first tier is the Central Bank of Russia and the second tier is the commercial banks and other financial institutions.
Specialised banks were also reorganized, making it open to any kinds of customer regardless of what sector, resulting to the rapid growth of new commercial banks not until 1996 when there was a huge imbalanced between the growth rate of investments in state securities and the investments in lending. In 1998, Russia was in deep crisis due to domestic and foreign debts. State securities had accounted for major share of Russian banks’ assets thus loss of liquidity occurred, creating panic among customers and resulting to mass withdrawal of deposits which paralysed the banking system (Perspectives, 2003).
The raise liquidity, the Central Bank bought government bonds from major banks and provided them with direct loans while depositors’ problems were solved by transferring their deposits to and some commercial bank’s assets to Sberbank which was one of the few banks that has avoided default on their obligations to customers (Perspectives, 2003). The crisis was overcome by reorganisations and programs, commercial banks have learned to adopt practices and strategies while the central bank adopted the “The Russian Banking Sector Development Strategy” in 2001 that primary aim to improve supervision over commercial banks.
The Financial Market At present, there are about 12 stock exchanges in the Russian market especially in Moscow where the trading floor of the Moscow International Currency Exchange (MICEX) and the Moscow Stock Exchange are located. Outside Moscow, there are regional stock exchanges centres with very low trade volumes. In 2000, the Russian Trading System (RTS) was dominated by the telecommunication (33%), energy (23%), oil and gas (14%), and engineering sector (12%) (Volkov, 2002).
The securities markets in the country provide a significant part in the corporate finance since commercial banks cannot provide corporate financial assistance. Trading volumes are concentrated on the six most liquid companies listed in the Russian Trading System (RTS): RAO UES, LUKoil, NorNickel, Surgutneftgaz, Yukos, and Sibneft which account for about 80% of value traded on the RTS (Standard and Poor’s, 2003).