You’ve heard plenty about Greece’s financial mess, Italy’s non-performing loans and the property busts in Ireland and Spain. We love covering Europe in Capital and Conflict.
But the simple truth is, the Eurozone remains a comparatively decent banking sector. At least for now.
Our friend Andrei Skvarsky from EmergingMarkets.me profiled the state of the Russian banking sector to give you an idea about the problems countries around the world face…
Russian regulator closes bank after bank in fighting crime
The closure of hundreds of banks by Russia’s central bank since 2014 highlights a feature of the country’s banking sector that may be more alarming than its endemic shortages of cash – an apparent scale of crime.
Undercapitalisation with typical consequences such as liquidity risks and non-performing assets, which is a chronic disease of Russia’s banking industry, has definitely been behind much of this cull.
But according to Reuters, that is not the main reason why the total number of banks in Russia has plummeted to around 520 from about 900 in 2014.
It is fraud, lending to fake companies, fictitious loans to individuals, stealing depositors’ money, financing tax-dodging sales and purchases and other crimes that explain most of the closures, Reuters says.
The agency has quoted central bank deputy governor Valery Pozdyshev as saying that there exists “a whole business of creating fictitious borrowers” and that it is “a whole virtual world managed by IT programs and servers which very often aren’t located in the bank”.
Remarkably, this aspect of Russia’s banking system receives comparatively little public and media attention, both within and outside Russia.
One talks a lot more about the money woes of banks such as Otkritie, which was rescued by the central bank in August 2017 in what was reportedly one of the largest bail-outs in the regulator’s history.
The sanctions imposed by the European Union and the United States on five state-controlled banks for their presumed role in the Ukraine conflict – lenders that control the Russian banking sector – are also a more popular subject than illicit activities in Russia’s banking world.
But Russia’s banking system has been riddled with crime ever since private banks began to multiply after the collapse of the Soviet Union. Murder became the routine method of dealing with problems.
In September 2006, two gunmen ambushed and shot dead central bank first deputy governor Andrei Kozlov, who had spearheaded a crackdown on money laundering and other financial crimes and initiated the closure of dozens of banks.
Gun violence is no longer as common in the banking sector as it was in the 1990s and early 2000s, but the central bank building is still heavily guarded and, according to Reuters, strong personal security is provided for the regulator’s senior staff when they travel.
By Andrei,
Editor-in-Chief, EmergingMarkets.me.
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Category: Central Banks