Cleaning up Russia's banks
The ongoing saga surrounding The Bank of Moscow shows that the transparency and moral climate of the Russian banking sector needs to be drastically improved, especially as the country may be following the developed world into a second wave of recession.
On Wednesday, Gennady Melikyan, head of supervision at the Central Bank stepped down after being publicly blamed for failing to hold Bank of Moscow to account. The bank was subject to a record government bailout earlier this summer after a $9 billion hole was found on its balance sheet. Investigations revealed that most of the risky credits were issued to acquaintances of the bank's top managers.
Melikyan told Kommersant that his resignation had not come as a result of the Bank of Moscow scandal, but because he was "psychologically tired."
Supervising the Russian banking sector is no easy task. Melikyan's predecessor, Andrey Kozlov, was assassinated in 2006 after making attempts to significantly clean up the industry.
Some analysts say that Melikyan was unjustly turned into a scapegoat for a situation that was far beyond one man's control.
"The problems of banking regulation run deeper they have a structural character," said Anatoly Aksakov, a Duma deputy and head of the Russian Association of regional banks. "Even if Malikyan had been fully informed, he couldn't freeze the lending process, as the regulator doesn't have enough credentials to do so."
Malikyan also oversaw the bankruptcy of Mezhprombank, the lender of industrial tycoon and close Putin ally Sergey Pugachev, which defaulted on 200 million euros worth of Eurobonds in 2010.
Aksakov said that other Russian banks which have features of captive financial institutions and lack transparency are now being scrutinized by Russian regulators. Over the past decade, the Central Bank's policy toward commercial banks has been gradually tightened.
Uralsib banking analyst Leonid Slipchenko said that the Russian banking system is lagging a long way behind its European counterparts.
"We still have over a thousand banks and not all of them have shifted yet to international accounting standards," Slipchnko said. "Russia's banking sector is suffering from a crisis of trust, rather than an economic crisis. Many people feared a collapse of the banking system during the 2008-2010 crisis, but that didn't happen."
Given the current situation on international markets, Malikyan's successor has a tough job ahead. Duma deputy Aksakov said the industry would welcome a candidate with an international background to help bring Russia closer to the banking standards of European banks.
"We do depend on the European banking system," Aksakov said. "We hope the new candidate will find new solutions and documents to prepare special regulations procedures for the largest banks."
Two candidates who have been put forward for the position so far are Alexey Simanovsky, head of the banking regulation and supervision department and Mikhail Sukhov, head of Central Bank licensing and financial rehabilitation. Both are members of the Central Bank's 11-member board of directors.
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