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Business news, 17.07.2007 16:15

The State of Northwest Banking

conference By Yekaterina Dranitsyna

Staff Writer

The state of the banking industry in the Northwest provoked mixed opinions Thursday at the 12th Northwest Banking Conference.

Vladimir Dzikovich, president of the Northwest Association of Banks, took a moderate line, saying that the Northwest may only account for a relatively small share of the country’s banking offices but the region is still attracting renowned foreign capital.

According to him, 81 credit organizations operate in the Northwest, which is 11 percent of Russia’s total. Recently four banks with foreign shareholders opened in the Northwest — a considerable result for the region, he said.

“Over the last five years Northwest banks have grown five to eight times in terms of capital and assets,” Dzikovich said. However 50 percent of banks are still small with assets of up to 500 million rubles.

Dzikovich expects the total number of bank offices in the region to increase to 1980 by the beginning of the next year.

One regional problem mentioned by Dzikovich was the volume of private deposits in the Northwest Bank of Sberbank Rossii, which is several times larger than other banks in the region. He also indicated the small share of mortgages (411 billion rubles) compared to the total volume of loans (2 trillion rubles).

The conference focused on ways to improve the quality of management and increase the capitalization of Russian banks, opportunities for growing businesses to attract financing and problems of financial markets.

“The conference welcomed over 400 guests from 220 companies and banks registered in Russia and 30 foreign countries. From year to year the conference is gaining in popularity and status,” said Alexander Levkovsky, president of Promsvyazbank – the organizer of the conference.

Garegin Tosunyan, president of the Association of Russian Banks, called for an increase in capitalization and assets, for regional development and IPOs.

“In many respects Russia is behind Kazakhstan, Ukraine, Moldova and even Georgia,” Tosynyan said.

GDP growth in Azerbaijan was reported at 34 percent last year as opposed to eight percent in Russia. In Armenia inflation was just three percent. In Tajikistan investment into fixed capital increased by 55.1 percent last year, in Armenia by 37.1 percent, in Belarus by 31.4 percent, but in Russia by only 13.5 percent.

“60 million people in Russia have no familiarity at all with banking services,” Tosunyan said.

In the last five years state funding in Russia increased five times while bank financing increased only 2.2 times, he said. “This trend should be changed. State funding is less effective compared to bank loans. In Kazakhstan and Ukraine bank assets represent a larger share of GDP than in Russia,” he said.

Mikhail Sukhov, director for licensing and financial enhancement at the Russian Central Bank, was more positive. The banking industry in Russia grew by one trillion rubles every three months last year, he said, while this year it is growing by 1.5 trillion rubles every three months.

Sberbank and VTB IPOs increased the capital of the Russian banking industry by 25 percent (436 billion rubles). However, he admitted, the capital of Russian banks is only enough to cover operational risks but not for development.

“Comparing the balances of Sberbank and VTB with other top 30 Russian banks, I can say that those banks should attract over 300 billion rubles to approach similar financial ratios,” Sukhov said.

Although the inflow of foreign investment is unavoidable, “with profitability of average assets at 26 percent Russian banks should also be attractive for local investors,” Sukhov said.

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