Twenty Five Years of Russian Banking System
| Date | 01 January 2014 |
| Published date | 01 January 2014 |
| DOI | 10.1177/0020881717726398 |
| Subject Matter | Articles |
Twenty Five Years of
Russian Banking System:
Trends and Analysis
Raj Yadav1
Abstract
The purpose of this article is to assess the Russian banking system for the period
1991–2015. After the disintegration of the Soviet Union, Russia introduced
economic reforms to move from a centrally planned economy to a market
economy, and banking reforms were part of it. During early years of transition,
Russia suffered from negative growth rate: 1998 and 2008 crises. The entire
Russian economy, including the banking system, got affected. Therefore, it is
essential to know how the Russian banking system performed in these 25 years.
The study found that the Russian banking system performance was not satisfac-
tory until 1998–1999; from 2000 onwards, the system showed some signs of
resilience. The Russian banking system is largely concentrated and dominated by
state-owned banks with 58.4 per cent of share of the total banking assets and
57 per cent share of the total banking capital in comparison to foreign-owned
and privately owned banks. Banks are largely concentrated in the regions of
Moscow and St. Petersburg in comparison to Ural, Siberia and Russian Far East.
Macroeconomic indicators of the Russian banking sector, including banking
sector assets, capital, loans, securities and household deposits as per cent to
GDP, revealed a rising trend. This indicates the ability of the banking sector to
create loans and attract depositors by maintaining their trust in the banking
system. Return on assets (ROA), return on equity (ROE) and non-performing
loans (NPL) are the main drivers of profitability, and the trend shows a low
growth rate in ROA and equity and high growth rate in NPL, which are of major
concern for banking system health.
Keywords
Banking, economic reforms, profitability, Soviet Union, Russia
Article
International Studies
51(1–4) 101–117
2017 Jawaharlal Nehru University
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0020881717726398
http://isq.sagepub.com
1 Assistant Professor, Centre for Russian and Central Asian Studies (CRCAS), School of International
Studies (SIS), Jawaharlal Nehru University (JNU), New Delhi, India.
Corresponding author:
Raj Yadav, Assistant Professor, Centre for Russian and Central Asian Studies (CRCAS), School of
International Studies (SIS), Jawaharlal Nehru University (JNU), New Delhi, India.
E-mail: rajyadavjnu@gmail.com
102 International Studies 51(1–4)
Introduction
New technology, government deregulation and globalization have changed the
financial service industry in general and the banking industry in particular.
Expanding both opportunities and risks, banking sector is no longer confined
to traditional financial intermediation catered to domestic local depositor and
borrower in a highly regulated low-risk environment. It has now extended to a broad
range of financial products, previously offered by other segments of the financial
service industry, catered to the global individual and institutional investor. At the
same time, it is also facing increasing competition from other segments of the finan-
cial service industry and volatile money and capital markets. Episodes of financial
crisis and banking crisis, embarking the banks all over the world, are increasingly
focusing on evolving complicated procedure and techniques to ensure their raised
efficiency, productivity and performance (Alvarez, Garcia & Gouveia, 2016).
Second half of the twentieth century witnessed ‘waves’ of market-oriented
reforms in many countries of the world, that is, Southeast Asia, Latin America,
Africa, the countries of Eastern and Central Europe, and the Commonwealth of
Independent States (CIS). After the collapse of socialism in 1991, some of these
countries implemented economic reforms in their efforts to make a transition from
a centrally planned economic system to one that is market driven. Among these,
some are industrialized countries (Russia, Eastern and Central Europe), others are
developing countries (Mozambique, Angola, Ethiopia, Vietnam, etc.) and still
others that fall somewhere between these two categories (countries of Central Asia).
At about the same time, other countries with highly state-regulated economic system
and dominant position of the public sector (though not centrally planned economies)
within an overall market framework also began to implement economic reforms
towards a system predominantly driven by market forces (Sachs & Warner, 1995).
One such major country is Russia.
Two fundamental and interdependent goals, macroeconomic stabilization and
economic restructuring, marked the transition from central planning to a market-
based economy. The former entails implementing fiscal and monetary policies
that promote economic growth in an environment of stable prices and exchange
rates. The latter requires establishing the commercial, legal and institutional enti-
ties, banks, private property and commercial legal codes, that permit the economy
to operate efficiently. During these 25 years, Russian economy has experienced
upheavals with negative GDP growth rate in the early 1990s, then in the 1998
financial crisis, 2008 global financial crisis and slowdown in the economy since
2013. Russian banking system too has moved through these tough times; there-
fore, it becomes crucial to follow and analyse the trend and performance. Present
research aims to study the structure of the Russian banking system since 1991 and
will also focus on 1998 financial crisis. Research also discusses the structure and
the role of the Russian banking system during the Soviet era. Study further tries to
assess the performance of the Russian banking system 2001 onwards.
There exists an interesting question: how do banks operate and where does the
money supply come from? During the past century, three different theories of
banking, namely financial intermediation theory, fractional reserve theory and the
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