Russian Banking

Russian Banking

Evolution, Problems and Prospects

New Horizons in Money and Finance series

Edited by David Lane

Russian Banking considers the rise of commercial market-oriented banks in Russia, their links with government and non-financial companies and their role as intermediaries in the provision of finance for investment. The contributors explore the legacy of the Soviet past and current functions of the Russian banking system, contrasting these with those in other post-communist societies and describing peculiarities such as informal networks and corruption.

Chapter 10: Russian Banks and Foreign Investments

Julia A. Solovieva


Julia A. Solovieva* INTRODUCTION In all respects, 1998 marked a turning point in the cosy relationship between Western investors and Russia. The Russian Federation not only allowed the ruble to devalue, and defaulted on its domestic short-term obligations, but seriously damaged its relationship with foreign investors. Whereas prior to the crisis, every player in the financial markets had to do business in Russia, by the middle of 2000, there was a lot of scepticism and mistrust. Most Western banks had closed their offices in Russia, downsized them, or, at best, mothballed them. Credit lines for Russian counterparts were reduced and often cut completely. As a result, trades in Russian assets were possible only with Western counterparts, but not with Russian ones. Only in 2001, on the back of a recovery of the domestic economy and a remarkable upturn in the Russian eurobond market did Western investors begin to consider moving into Russia again, and applied for lines to be restored. The aim of this paper is to establish where and why foreign investors1 put their money into the Russian banking system, and how much they were able to take out after the crisis. INVESTMENTS IN THE RUSSIAN BANKING SECTOR PRE-CRISIS 1. The Loan Market Two types of foreign investor became involved with Russian banks. On the one hand, there were foreign banks that invested in equity and thus bought part of a Russian bank, while on the other hand there were Western banks that invested money in bonds issued...

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