|                                                                                                                                                             |  | BANKING IN RUSSIA'S REGIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | July 1997by Lana SimkinaFirms doing business in Moscow are already growing accustomed to the wide range of banking
services now available in the Russian capital, including corporate banking, lending, and securities
transactions.  Beyond Moscow, however, regional banks are still widely viewed with skepticism. 
With Russia's banking system in a state of rapid change, BISNIS set out recently to learn what
banking services are available outside Moscow, how risky regional banking may be, and what to
look for in choosing regional banking services.There are at least three options when selecting regional corporate banking services.  If your
company is based in Moscow and only conducts business elsewhere on occasion, all interregional
transactions can be conducted through correspondent accounts at an appropriate Moscow bank. 
As your firm's regional operations grow, however, banking from Moscow may become expensive
or inconvenient.  At this point, you may want to consider opening an account with a regional bank
or moving to a regional branch of a Moscow-based bank.Branches of Moscow-based Banks
Leading Moscow banks are hurrying to expand in Russia's regions, which are widely viewed as an
important source of future revenues.  A definite leader in regional banking is Sberbank, whose
network of 30,005 branches and numerous affiliates covers all Russian regions (except the
Chechen Republic).  Another is Inkombank, which operates 63 branches in 42 Russian regions. 
Inkombank president Vladimir Vinogradov, addressing his bank's stockholders, stressed that
"Inkombank continues to expand its regional branch network, which earns two-thirds of the
bank's revenues."  Pursuing similar objectives, Bank Rossiyskiy Kredit has developed a regional
network of 37 branches, opening five branches in the first quarter of 1997, with 10 more to come
in the near future.Regional branches usually operate under an agreement with their corporate headquarters that
specifies in detail all functions a branch is authorized to perform.  Typically, a branch offers a
standard package of services, including ruble and hard currency accounts, lending, and securities
investment.  Nevertheless, certain services are provided almost exclusively from Moscow,
particularly loan processing and bank guarantees.  To avoid disputes later, it is critical to know in
advance whether a particular service is under the branch's jurisdiction.  For instance, before
accepting your Russian business partner's letter of credit from a regional branch, make sure that
the branch in question is authorized to issue one.  "When in doubt do not hesitate to contact the
Moscow headquarters for clarification," recommends Yuri Isayev, Deputy Chairman of
Rossiyskiy Kredit, adding that "definitely, headquarters exercises a fuller authority than a regional
branch to solve or prevent problems."Remember that inadequate infrastructure can complicate interregional transactions.  None of
Russia's banks has a computer network connecting all branches, although the largest banks are
working on it. Meanwhile, to enhance the effectiveness and flexibility of interregional payments,
major Russian banks have introduced bank promissory notes, available for purchase in all
branches.Regional banks, remote from the still highly profitable government securities market, are losing
clients and capital to Moscow banks.  Thus, the balance of corporate clearing accounts in
Moscow banks rose by 68 percent while dropping 10 percent in the regional banks during the first
11 months of 1996.  While major Moscow banks enjoyed a 75 percent increase in profits last year,
regional banks' profits fell 27 percent  overall.  The situation will improve somewhat for regional
banks, as government securities yields continue to drop, but meeting new minimum charter capital
requirements is likely to be a challenge.  Despite their relative weakness, several regional banks
have made the "Interfax-100" rating, whose first 24 places have been held continuously by
Moscow banks.  The best regional banks offer full services for corporate clients, including a
well-developed system for making domestic and international payments.  Bashkortostan's
BashKredit Bank (rated 33rd by Interfax), for instance, transfers money within one working day
in Russia, and two days internationally.Tips for Regional Banking
While it is now possible to obtain quality banking services in Russia's regions, there are several
things to keep in mind when seeking a provider of these services.  As with any bank, choose a
stable bank with experience in the local market.  If your company is doing business in a number of
Russian regions, a bank with an extensive branch network would be a good choice for your firm's
regional banking and will expedite your transregional transactions.  Bank services and fees offered
by different branches may vary slightly, depending on local demand; but in many cases, it is
possible to negotiate unification of the services and fees for your company.  Again, be sure that a
branch is authorized to offer a particular service.  You can do so by examining a copy of the
headquarters-branch agreement, which a branch should have on file.Do not hesitate to contact a branch's Moscow office with any specific requests or concerns. 
Since branches are not connected into one network, you will benefit from alerting your branch or
the home office of any transactions you plan to do in other regions.  This will allow your bank to
take special measures to make your transactions timely and effective. For a list of selected
Moscow banks, visit BISNIS Online at www.mac.doc.gov/bisnis/country/msbanks.html.Lana Simkina works for BISNIS in Moscow.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)