Russian Banking Crisis Deepens
Russia's Central Bank has ordered six top domestic commercial banks to surrender individual depositors' savings accounts to state-owned Sberbank, effectively taking over retail banking in the country. Meanwhile, the ruble plunged against the U.S. dollar as official currency trading opened for the first time in over a week.
At the end of the Thursday trading session, the ruble rate was at 13.4 per dollar off its lows of 13.8, making the Russian currency less than half as valuable as it was only two weeks ago. In electronic trading, the ruble fell to as much as 16 to a dollar.
Growing fear of hyperinflation has sparked a runs on banks, as Russian consumers scramble to get their increasingly worthless rubles out of their savings accounts and into more durable commodities - dollars, gold jewelry, electronic goods or even food supplies.
Most commercial banks, which made most of their money from trading in government bonds rather than personal finance transactions, were left heavily exposed after the government's default on Treasury bonds. Most of Russia's 1,600 banks, including the largest ones owned by the so-called oligarchs, now are undercapitalized to meet their obligations, and are effectively bankrupt, analysts said.
The Central Bank defended its decision to transfer personal accounts to the more secure state national savings bank, Sberbank, as a policy in the national interest. Officers from the six commercial banks affected - Inkombank, Menatep, Most-Bank, Mosbiznesbank, Promstroibank and SBS-Agro - told reporters that the move could starve them from their last form of business.
"No one asked the banks about their wishes, they just announced it," said the chairman of the Russian banking association, Sergei Yegorov. "The decision, effectively forcing clients to transfer deposits, could squeeze the activities of the banking sector. Banks will be left with practically no clients."
Banking analysts have been calling for more decisive action from the Central Bank, arguing that the government doesn't have the money to bail out institutions and should instead restructure the sector.
Poul Larsen, head of research at Rye Man & Gor Securities, said that the transfer of accounts to Sberbank offered a welcome measure of security to depositors, but also set a bad longer-term precedent for the Russian banking system.
"Sberbank already has 80 percent of the retail deposits in Russia while SBS-Agro and Inkombank between them have about 10 percent," Larsen said. "If a large chunk of that goes to Sberbank, that leaves just one retail bank in Russia - hardly a good thing in the longer term."
SBS-Agro, the country's largest private retail bank, had already been taken under Central Bank administration, and Central Bank chairman Sergei Dubinin said Wednesday the bank was in effect bankrupt. SBS-Agro said Wednesday it can't pay $1 billion in foreign loans.
Some analysts questioned how the Central Bank woud be able to guarantee all of those individual deposits, the estimated value of which is $21 billion, when its own hard currency resources are a little more than $13 billion. They warned that the bank would be tempted to print rubles instead, risking hyperinflation.
This scenario prompted Boris Feodorov, Russia's former tax chief who now holds the post of deputy prime minister, to suggest implementing a currency board - a system under which a harsh yet simple mathematical equation, and not the Central Bank, determines how many rubles the state can put into circulation.
"Now the Central Bank must announce a floating exchange rate and allow it to slowly move to the actual level," Feodorov said. "The market must be freed if we are to understand what the actual exchange rate is."
Though Feodorov estimated that $10 billion in Central Bank reserves would suffice to form a currency board here, other economists said at least $25 billion would be needed - an amount Russia doesn't have.
Printing lots of rubles would let the Central Bank make easy loans to Russia's commercial banks, and would also mean rubles to spare for the state to give to industry and to pay off millions of unpaid workers. The political temptation to whir up the printing presses is obviously great, especially in a country where leading bankers are often described as an oligarchy with enough clout to lean on even President Boris Yeltsin.
Written By Margaret Coker, CBS MarketWatch Moscow Correspondent