Banking consolidation gets push from financing needs

The visit by a team of Credit Suisse bankers to Moscow has bankers in Russia thinking it could be the prelude to consolidation in the domestic banking sector.

Bankers are closely studying the recent state takeovers of failing banks by the British government, which now finds itself a majority shareholder in some of the UK's biggest lenders.

The Russian banking system has long cried out for consolidation, according to Yury Voytsekhovsky, CEO of Standard Bank.

“Russia has too many banks at the moment, and consolidation means Russia will have much bigger banks. As you know the banking sector has been rather under developed, lacks capital, investment.”

Ilkka Salonen, Deputy Chairman of Sberbank says there are lessons to be learned – and applied – from the West and that the Russian government could look at the British experience as a model.

“I think that it not only could but I find the probability of some kind of program like that which was used with RBS or Lloyds will be used here as well.”

At the end of 2008, there were over 1,000 lenders registered in Russia. Many are little other than corporate treasuries. Prime Minister Vladimir Putin has said the government needs to encourage consolidation in order to help banks increase their capitalisation.

The Finance Ministry has already promised huge government spending to prop up the banks. Now it seems, it might want something back in return.