Saint Petersburg, Russia; 8 February 1999 (RFE/RL) -- When the collapse of the Russian treasury bond market forced a number of leading Moscow banks to close their doors and left others reeling from losses, most Saint Petersburg banks managed to weather the storm.
The reason is that only a small amount of their resources were invested in GKOs, the state treasury bonds. The leading Moscow banks had dominated the lucrative GKO market and kept their Saint Petersburg
Now, as local banks are publishing their financial results for 1998, some can point to profits -- rare things in Russia now.
Northwest Russia's largest bank by assets, Promyshlenno-Stroitelnye Bank (PSB), known in English as the Industry-Construction Bank, posted a 1988 pre-tax profit equivalent to about $3.77 million.
Another leading St. Petersburg bank, Balt-Uneximbank -- a member of
Interros, the financial-industrial group controlled by Vladimir Potanin -- posted a profit of $1.77 million for 1998.
Both banks are in the process of taking over other leading Saint Petersburg banks: PSB, the Bank of Saint Petersburg; and Balt-Uneximbank, Petrovsky Bank to form the United Bank of Saint Petersburg.
When the takeovers are completed, Saint Petersburg will effectively be a three-bank town, with Baltiisky Bank the city's only other large independent bank.
According to PSB officials, their bank has successfully emerged from Russia's financial crisis, which began on August 17 when the government defaulted on state treasury bonds, the GKOs.
At that time, only about five percent of PSB's assets were in GKOs. According to the bank's chairman, Alexander Emdin, those losses were minimized by what is known as a "stabilization" credit of 85 million rubles from the Central Bank.
The biggest challenge for the bank in the past six months has been reaching an agreement on the terms of repayment with its foreign creditors, who had lent PSB the equivalent of 92 million dollars before the crisis. Bank officials say they worked out an agreement that provides equal terms for all foreign creditors.
PSB's credit portfolio totals the equivalent of $234 million in rubles, with most of the money going toward key industries in the economy of northwest Russia. PSB holds the accounts of 49,200 corporate clients, and 221,000 private individuals. Among its clients are the engineering giant, Kirovsky Works, Neva-Tabak, the Sheraton Nevsky Palace Hotel, Lenenergo, Novgorodenergo, and Petmol, the leading dairy factory in the Russian northwest.
Among its notable credit projects last year were a $30 million loan to the construction company, Metrostroi, for completion of three new subway stations, and $26 million worth of credit to the city for the purchase of new buses.
Balt-Uneximbank also has been trumpeting its record. Among its projects are financing for the construction of an $80 million ice hockey stadium for the World Hockey Championships in 2000, and for reconstructing the northeast subway line, which collapsed several years ago.
Balt-Unexim, which has assets equal to about $175 million, also works closely with local enterprises, such as the Severnaya Verf shipyards, to which it extended a $200 million credit line early last year for building warships for sale to Asian countries. Balt-Unexim mostly serves large corporate clients, as the oil refinery, KINEF, the Pulkovo airport, and Lengaz, the local natural gas retailer. The bank also serves the city government and it holds the account of the Northwest Customs Service.
Lev Savulkin, senior researcher at the Leontiev Center, a local institute for social and economic research. says some of the profit figures are misleading. The dollar equivalent of the numbers has fallen precipitously. Ruble devaluation and annual inflation of 84.4 percent in 1998 eroded the potency of the bank's profits.
Savulkin says it is important to remember that in an effort to pay less in taxes, nearly all Russian banks and companies seek to underreport their earnings.
He says that Balt-Unexim has enjoyed several key advantages. It sold off its GKOs before the crash, and it has strong ties to the export sector which provides opportunity to increase hard currency assets.
Savulkin contends also that Balt-Unexim benefited from receiving assets from the dying Uneximbank in Moscow, hit by the August crisis. Balt-Unexim, however, denies that any assets were transferred.
One thing isn't open to dispute. The number of Balt-Unexim's corporate clients more than doubled to total 1590 by the end of 1998.
(John Varoli is a Saint Petersburg-based journalist who frequently contributes stories to RFE/RL.)