The Problematic Nature of Russian Banking

The Central Bank of Russia (CBR) has received rave reviews for pursuing a strict macroeconomic policy and a sound cleansing of the banking system since 2013. In six years, roughly 474 out of 958 banks were closed down. While many banks were of poor quality, the results are not reassuring, because the main outcome is that big state banks have become more dominant. The number of both small and medium-sized private banks and foreign-owned banks has been sharply reduced. The volume of credits has stayed low, and the credits to small and medium-sized enterprises have stagnated. In the second half of 2017, three of Russia's five largest private banks, which had acted as consolidators, collapsed. Rather than nurturing a sound banking system, the CBR regulators have encouraged the big private banks to absorb too many failed banks, taking excessive financial risks. All three faced accusations of corporate raiding. The CBR bank regulators who were supposed to cleanse the banking system appear to have stalled private banking in Russia for the foreseeable future.