May 1999

by Azim Mamanov

In contrast to other regions of Siberia, Novosibirsk Oblast banks were not badly affected by the Russian financial and banking crisis that struck in August 1998. Because these banks had minimal involvement in Russian treasury bills (GKOs), they suffered minimum losses when the gko market collapsed. Before the crisis, 25 banks operated in Novosibirsk. Out of the 25, three local banks Khlebny Bank, Russky Narodny Bank, and Sibirsky Bank no longer operate (the first two were "swallowed" by larger banks and the third collapsed) and the affiliates of some Moscow banks, such as Tokobank, Inkombank, MosBusinessBank, and Rossiisky Kredit, are in very bad shape. Currently, approximately 20 banks are active in the oblast, of which half are local banks and half are affiliates of banks from Moscow and other Russian cities. (Although most banks in Novosibirsk remain operational, losses for both corporate and individual depositors were substantial.) In general, the crisis has served to reduce the total number of banks operating in the region and should eventually further weed out the weak banks.

The financial crisis has led to a redistribution of the Novosibirsk clientele of branches of large Moscow banks that went bankrupt or experienced serious problems. Local banks that survived the crisis have acquired most of the clients of failed banks. As a result of bankruptcies and client shifts, the ratio of local banks to nonlocal banks has changed. Whereas nonlocal banks dominated the scene in the pre-crisis period, now they are about even with local banks.

Another effect of the crisis was to reaffirm and strengthen the dominant role of Sberbank (the national savings bank) in the banking system of Russia. A large number of corporate clients and individuals keeping their savings in bankrupt banks switched to the Novosibirsk affiliate of Sberbank.

Banks Attempt to Adjust
In the framework of restructuring of the Russian banking system, the Russian Central Bank introduced new minimum capital requirements. To maintain operations under the new requirements, most banks are choosing among three options, a trend that can be seen in practice in Novosibirsk.

The first option is unification with, or absorption by, a large nonlocal bank. In 1998, Sibirsky Khlebny Bank and Sibirsky Bank chose this option. The second option is consolidation between local banks. In 1998, the Russky Narodny Bank merged with SibAcademBank. The third option is a transition by a full-service bank to a lower category of bank that provides a limited range of services. Each Russian region, including Novosibirsk, has three to five small banks that provide only a few services and effectively cater to a specific sector of the local market.

Competition in the Novosibirsk Banking Market
Many local banks already specialize in different sectors of the local banking market. Bank Alemar provides services in the promissory notes market, NovosibirskVneshTorgBank and SibEcoBank serve the hard currency market. Despite this specialization, competition does exist in the market for banking services in Novosibirsk.

Traditionally in Novosibirsk, only large Moscow-based banks have competed for major corporate clients that are engaged in trade, transportation, mining, and other industries. These clients require substantial capital turnover and a wide range of banking services. Only large banks with sufficient financial resources and a wide range of high-quality services have been able to satisfy this demand. However, local banks are capable of competing with Moscow banks in a number of other segments of the market. For example, Novosibirsk-VneshTorgBank has been successful in supplying the market for trade finance and hard currency operations; SibEcoBank competes in the sphere of information technologies, and Levoberezhny and Municipalny banks serve the market for government budget funds.

The other major category of bank clients is small- and medium-scale companies. Before the crisis, all banks provided services to this category. Currently, small banks providing services at lower fees, such as Sibirsky Krestiansky, Ros, Municipalny, Belon, Levoberezny, and Accept, work with these types of companies. Nonlocal and larger stable local banks, such as NovosibirskVneshTorgBank, SibEcoBank, and SibAcademBank, provide services at the highest fees, and thus are more focused on attracting large corporate clients.

As Novosibirsk is considered the "capital city" of Siberia, one of the tendencies in its banking system is the arrival of large nonlocal banks that survived the crisis. This influx should lead to greater competition between banks and higher quality banking services. In the aftermath of the crisis, all companies, both local and foreign, should be able to choose a bank, or several banks, that can adequately meet their needs.

For more information on Russian banking, visit BISNIS Online at www.mac.doc.gov/bisnis/country/rusfed.htm.

Azim Mamanov is the BISNIS overseas network representative in Novosibirsk.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)