News / Economy

Russians See No Cause for Alarm in Crackdown on Shadow Banking

The company logo of Master Bank is seen outside a branch in Moscow, Nov. 20, 2013.
The company logo of Master Bank is seen outside a branch in Moscow, Nov. 20, 2013.
Reuters
The problems exposed in Russia's banking system by last week's collapse of mid-sized lender Master Bank are deep-rooted, but in contrast with banking failures of the past, there was no evidence this time of other banks' customers taking fright.
 
That seems surprising to analysts, as the collapse has highlighted the difficulty of enforcing regulations against banks with strong political connections, and the widespread use of illegal payments to service Russia's large black economy.
 
“Other banks are in the same situation as Master Bank, that's for sure,” said Alexander Lebedev, a media tycoon and banker. “Whether the central bank will have enough guts [to act] - let's wait and see.”
 
The central bank withdrew the license of Master Bank on Wednesday, citing “large-scale dubious operations” and payment difficulties for clients and some other banks that used it to process card transactions.
 
“We don't see any rise in the rates on the interbank market or on the government bond market, so it's a very local event,” said Maxim Osadchy, head analyst at BKF bank, in Moscow.
 
The bank ranked as the 72nd largest lender by assets in a country which has more than 900 banks, but most are tiny. Even the size of Master Bank's operations for processing card payments, around $1.5 billion a month, was relatively small for a sector with assets totaling $1.7 trillion.
 
New Psychology
 
The relative calm that followed Master Bank's failure also reflects changes in the regulation of the sector and public confidence in recent years, said Richard Hainsworth, head of local ratings agency RusRating.
 
He drew a distinction with banking crises in 1998, the year of Russia's cataclysmic financial crash, and 2004, when the failure of a small bank called Sodbiznesbank provoked deposit runs.
 
Since then, the government has helped calm nerves with state-backed deposit insurance under which the government guarantees up to 700,000 roubles ($21,200) for each saver.
 
“In 1998 there were fisticuffs outside the doors of banks,” he said. “That doesn't happen any more because people are confident they'll get their money back.”
 
Hainsworth saw a greater similarity between the current incident and the failure of International Industrial Bank, a mid-sized bank that folded in 2010 after a long period of speculation about its shaky finances.
 
“In both cases, the senior managers and owners of the bank had very strong connections with the political elite,” he said. “It wasn't that [Sergei] Ignatyev, the previous head of the central bank, was powerless. But he was constrained by the political conditions in which he was working,” continued Hainsworth.
 
Igor Putin, a distant cousin of President Vladimir Putin, was on Master Bank's board. Russian commentators have also speculated over protection from officials in law-enforcement agencies. “Clearly there has been protection - a krysha [roof), as we put it,” said Lebedev.
 
Although many analysts have praised the central bank's new governor, Elvira Nabiullina, for taking tough steps against Master Bank, some have questioned why it took so long.
 
Russian police first announced a criminal investigation into Master Bank in April of last year. Since then, the bank not only took in more retail deposits, but also expanded its loans, which are now unlikely to be recovered.
 
The central bank has said that in total, the bank has made around 20 billion roubles ($600 million) in loans to related parties, including its own shareholders.
 
Master Bank's main owner, Boris Bulochnik, has not commented publicly since the bank's license was withdrawn. His whereabouts are unknown.
 
Black Cash
 
Another troubling issue highlighted by the Master Bank affair is the role of banks in servicing Russia's large shadow economy, analysts said.
 
Police have accused the bank of illegal “encashment” of over 2 billion roubles, while the central bank has estimated the total volume of “dubious” encashment operations by the bank amounted to 200 billion roubles.
 
“Encashment” refers to a practice whereby banks undertake transactions for clients using cash, rather than electronically, as required by law for large transactions.
 
“So-called 'black cash' is used for bribes, for payment of wages, for evading taxes,” explained Osadchy, who estimates the annual volume of black cash transactions in Russia amounts to around $40 billion.
 
Despite the scale of the problem, or perhaps because of it, it was unlikely that the withdrawal of Master Bank's license would lead to a wave of similar bank closures by the authorities, he said.
 
“The fund for guaranteeing deposits isn't limitless,” Osadchy said. “I would even say that this system of black banking is too big to fail.”

You May Like

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

Euro falls after European Central Bank announces a bigger-than-expected $67 billion-a-month quantitative easing program More

Saudi King’s Death Clears Succession Route

Prince Mohammed Bin Nayef is Saudi Arabia's New Crown Prince-in-waiting More

Cloud Hangs Over US Counterterrorism Efforts in Yemen

Sources say resignations of Yemen's president, government has left US anti-terror operations 'paralyzed,' yet an American military 'footprint' remains More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Worldwide Photo Workshops Empower Youthi
X
Julie Taboh
January 23, 2015 11:08 PM
Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.
Video

Video S. Korean Businesses Want to End Trade Restrictions With North

Business leaders in South Korea are calling for President Park Geun-hye to ease trade restrictions with North Korea that were put in place in 2010 after the sinking of a South Korean warship.Pro-business groups argue that expanding trade and investment is not only good for business, it is also good for long-term regional peace and security. VOA’s Brian Padden reports.
Video

Video US Marching Bands Grow Into a Show of Their Own

The 2014 Super Bowl halftime show was the most-watched in history - attracting an estimated 115 million viewers. That event featured pop star Bruno Mars. But the halftime show tradition started with marching bands, which still dominate the entertainment at U.S. high school and college American football games. But as Enming Liu reports in this story narrated by Adrianna Zhang, marching bands have grown into a show of their own.
Video

Video Secular, Religious Kurds Face Off in Southeast Turkey

Turkey’s predominantly Kurdish southeast has been rocked by violence between religious and secular Kurds. Dorian Jones reports on the reasons behind the stand-off from the region's main city of Diyarbakir, which suffered the bloodiest fighting.
Video

Video Kenya: Misuse of Antibiotics Leading to Resistance by Immune System

In Kenya, the rise of drug resistant bacteria could reverse the gains made by medical science over diseases that were once treatable. Kenyans could be at risk of fatalities as a result if the power in antibiotics is not preserved. Lenny Ruvaga has more on the story from Nairobi.
Video

Video Solar-Powered Plane Getting Ready to Circumnavigate Globe

Pilots of the solar plane that already set records flying without a drop of fuel are close to making their first attempt to fly the craft around the globe. They plan to do it in 25 flying days over a five month period. VOA’s George Putic reports.
Video

Video How Experts Decide Ethiopia Has the Best Coffee

Ethiopia’s coffee has been ranked as the best in the world by an international group of coffee connoisseurs. Not surprisingly, coffee is a top export for the country. But at home it is a source of pride. Marthe van der Wolf in Addis Ababa decided to find out what makes the bean and brew so special and how experts make their determinations.
Video

Video Yazidi Refugees at Center of Political Fight Between Turkey, Kurds

The treatment of thousands of Yazidis refugees who fled to Turkey to escape attacks by Islamic State militants has become the center of a dispute between the Turkish government and the country's pro-Kurdish movement. VOA's Dorian Jones reports.
Video

Video World’s Richest 1% Forecast to Own More Than Half of Global Wealth

The combined wealth of the world's richest 1 percent will overtake that of the remaining 99 percent at some point in 2016, according to the anti-poverty charity Oxfam. Campaigners are demanding that policymakers take action to address the widening gap between the ‘haves’ and the ‘have nots’, as Henry Ridgwell reports for VOA from London.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid

World Currencies

EUR
USD
0.8930
JPY
USD
117.98
GBP
USD
0.6673
CAD
USD
1.2445
INR
USD
61.498

Rates may not be current.