|                                                                                                                                                             |  | EVALUATING RUSSIAN BANKS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | December 1997/January 1998by Philip H. de LeonThe emergence of a commercial banking system in Russia over the last eight years has spawned
hundreds of new Russian banks.  Some of these banks are becoming pillars of the country's
banking system.  Many others are rapidly disappearing, as increased competition and regulation
drive them out of business.  In a still unsettled banking climate, it can be difficult to evaluate a
bank's financial health when selecting a financial service provider.  While there is no fool-proof
method for evaluating any Russian bank, a number of private- and public-sector entities can
provide an American firm with important clues to a bank's well-being.  Some of these entities are
described below.Central Bank of Russia
When considering whether or not to do business with a particular bank, a U.S. company should
verify the type and validity of the bank's license.  Only banks holding a valid license issued by the
Central Bank of Russia (CBR) can legally conduct banking operations in Russia.The CBR may
revoke a bank's license if the bank in question does not conform to federal banking laws and CBR
regulations.In practice, the revocation of a license does not mean that a "former" bank will
necessarily cease operations at once, making it all the more important to verify the validity of a
banking license.There are six categories of banking licenses in Russia.  The most useful license, from the
standpoint of a U.S. company, is a general license.  A general license authorizes the broadest
scope of activities, including both ruble and foreign exchange operations.  To obtain a general
license a bank must have a minimum authorized capital of  $3.3 million, a requirement which will
rise to $5.5 million by July 1, 1998.  The CBR regularly publishes a list of banks which have had
their licenses revoked. This list is available on the CBR website: www.cbr.ru/.Thomson BankWatch
One of the world's largest bank rating agencies, Thomson BankWatch, Inc. provides its clients
with Russia-focused research products.  Thomson's "Russian Federation Banking System
Report," which is updated regularly, describes the Russian banking system, emphasizing financial
issues, the operating environment, and background information.  The BankWatch "Banking
Company Profile" is an in-depth study of an individual financial institution, and includes ratings,
an overview of the bank, a profitability analysis, assets, capital ratios, balance sheet information,
and relevant spreadsheets.  BankWatch has profiled about 30 Russian banks.BankWatch also issues ratings of Russian financial institutions and debt.  "Issuer ratings" focus on
a consolidated financial institution.  "Debt ratings" offer an opinion on either short- or long-term
debt issues.  Both issuer and debt ratings are subdivided into ratings which are done for purposes
of global comparisons and ratings which apply to local currency operations.  Rating updates and
changes are posted immediately. For more information on BankWatch, visit its homepage
at: www.bankwatch.com/.The Interfax-100
The Interfax-100 is a handy, comparative ranking of Russia's largest banks.  A quarterly report,
the Interfax-100 is published primarily in Russian by the Interfax Center for Economic
Analysis, a subsidiary of the Interfax news agency.  It lists Russia's 100 largest banks in terms of
assets, private deposits, volume of promissory notes issued, and other criteria.  The report also
provides each
bank's city of origin, which can be helpful for firms looking for a regional, rather than a Moscow
bank (see BISNIS Bulletin, July 1997, Page 1).A few caveats apply when using the Interfax-100.  Some selection criteria are based on Russian,
rather than international accounting standards.  Also, the banks listed have not been audited for
the specific purpose of establishing the list. For more information about the Interfax-100,
visit the Interfax homepage, at: www.interfax-news.com/.World Bank/EBRD
The World Bank and the European Bank for Reconstruction and Development (EBRD)
jointly operate the "Financial Institutions Development Project" (FIDP) in Russia (see BISNIS
Bulletin, March 1996, Page 1).  Russian banks are "twinned" with reputable foreign banks,
including U.S. institutions such as the Bank of America and CoreStates.  The Russian banks
receive technical assistance, supervision, and financing.  The goal of the FIDP is to strengthen a
core group of Russian banks, raise banking standards generally, lay the foundation for a private
nationwide clearing system, and qualify participating banks as on-lenders of World Bank, EBRD,
and other international credit lines.Currently, 39 private commercial banks participate in the FIDP.  Although these banks have
undergone a full on-lending audit conducted by international auditing firms, World Bank and
EBRD officials stress that participation in the FIDP does not guarantee reliability.  Rather, it
indicates a bank's willingness to operate using internationally recognized banking standards.For information on the FIDP, visit the EBRD homepage at:
www.ebrd.com/opera/index.htm.Philip de Leon works at BISNIS in Washington, D.C.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)