“The Central Bank of Russia has increased the insurance coverage to some 700 thousand Roubles, which is quite considerable given the average salaries in Russia, and has made access to the banking information easier and boosted the system’s transparency. And, I think, the firm Government position, expressed in November last year, to support the banking system notwithstanding any social sentiment became crucial for making Russian people more confident about the system’s reliability.”

Rustam Botashev, Senior Analyst at Unicredit Securities believes the low public trust of the banking system reflects the chaos in the financial system during the 1990’s and that this will take a long time to change.

“I think the reason is in history, in the negative experience of the 90s, when people lost all their savings several times in a decade. It’ll be very difficult to change people’s psychology and make them forget all those troubled times. Frankly, I think, a generation should change to see a more positive attitude to Russia’s banking sector.”

Botashev agrees that the extension of the system insurance by the central bank will help support confidence in the system in the longer term.

“I think, for today Russia’s Central Bank already took the most important step possible to take – increased the insurance coverage. There’s nothing more the banks could do, because unless the Government proves its high efficiency and makes people forget the negative past experience, nothing will change really. And, I repeat, this will require a new generation.”

The lack of confidence in the banking system has become more of an issue over the last year as global sources of credit dried up in the wake of the global credit crunch. Many Russian banks, particularly smaller banks, have boosted deposit rates to try and draw savings in order to replace borrowings which are now more difficult to obtain. Mark Rubinshtein believes the damage to the system from a lack of confidence reduces the efficiency of the system.

“The lack of trust damages the financial system as the money kept by people under the pillow is a huge potential resource of the long – term funding for banks. So being brought into the system, this money could work much more efficiently.”

Rubinshtein also adds that although public confidence in the system is lower than in Europe it is improving and can be expected to improve further.

“Actually, people in our country do trust banks, but the level of trust is still lower than in Europe. However, thanks to the steps Russia’s Central Bank has been taking for about 2 years already it’s constantly increasing and, I think, will grow further.” 

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