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Russia, Lithuania Strive To Streamline Banking Discipline

  • Ron Synovitz

Prague, March 20 (RFE/RL) -- Alexandr Khandruyev, First Deputy Chairman of Russia's Central Bank, says that Russia "has N-O intention to grant centralized loans to insolvent banks."

Speaking yesterday at an international banking conference at Radio Free Europe/Radio Liberty's Prague headquarters, Khandruyev said the Russian central bank would only grant loans to "potentially solvent banks."

Khandruyev said Russia "has no remedies for now" to close its many troubled commercial banks because there is N-O-T effective legislation regarding the bankruptcy of banks. He said the central bank is "seeking to try to find appropriate measures in the existing (legal) framework."

One such measure is to revoke bank's operating licenses. The Central Bank recently announced that it revoked the licenses of more than 300 of Russia's 2,600 commercial banks in 1995. Some analysts expect another 500 to 700 bank licenses to be revoked in the next few years.

Clearing out the hundreds of small, undercapitalized banks is a key element in Russia's efforts to restructure its financial system. To meet that end, the Central Bank has said that existing banks must raise their minimum capital to about 4 million dollars before 1999. Only about 100 banks currently have net capital above that figure.

The Central Bank is encouraging small banks to merge together into bigger, stronger institutions. But competition and mutual distrust between bankers has slowed that process.

Khandruyev blames the problem of proliferating banks on excessively liberal legislation. He says the avalanche of new institutions has subsided when the minimum capital required to start a bank has been raised. He said the central bank two years ago was granting 200 to 300 bank licenses per month. By comparison, this year it is granting about one a month.

Khandruyev would N-O-T say how many of Russia's banks are on the verge of collapse or should have their licenses revoked. All of the licenses revoked last year involved relatively small banks.

But recently the Central Bank announced that it would soon appoint temporary managers at one of the country's larger commercial banks, Natsionalnyi Kredit, because of poor management and a shortage of hard cash. ast summer That bank was ranked 17th (in terms of assets) out of 2,600 other banks. The announcement sent shockwaves through the international finance community.

Khandruyev also said that the balance sheets of "many commercial banks" in Russia "are overloaded with bad debts." That means that loan officers have lent out too much money to firms or individuals whcih either can't pay the money back or refuse to do so.

Speaking also at the Prague conference, Lithuanian central bank Deputy Governor Jonas Niaura says other countries can learn lessons from the recent banking crisis in his country, which led to the resignation Prime Minister Adolfas Slezezicius last month.

Niaura says the Bank of Lithuania has since focused emphasis on supervision. He says A-L-L banks that do not meet strict new regulations will have their licenses revoked.

Niaura said: "The new rules of the game are to force transparency" because without open information about the strength of the banks, the public will N-O-T have confidence in the banking system. He said the public also loses confidence in financial institutions when they suspect political and special interest group pressure influence government financial policies.