Originally created 10/24/98

Russia's head banker predicts collapse of banks



MOSCOW -- Russia's chief banker predicted Friday that only a fraction of the country's commercial banks would survive the current economic crisis, even with help from the Central Bank.

Some 200 to 300 commercial banks will weather the crisis, said Central Bank chairman Viktor Gerashchenko.

The Central Bank recently estimated there were 1,700 commercial banks in Russia, although the Profil business weekly said just 905 remained profitable after the crisis erupted in mid-August.

"Only a small number of banks will be able to stay afloat in the current situation," Gerashchenko told Interfax news agency.

Russian entrepreneurs rushed to open banks in the post-Soviet era, but few ever established a solid financial footing or offered Western-style retail services.

Many collapsed in the wake of the crisis or froze accounts. Dealing among other banks all but stopped, due to the plummeting ruble and a lack of capital. They also face potential losses from huge investments after the government defaulted on treasury bills.

Talks between Russian officials and foreign banks that hold many of the treasury bills broke down in London on Thursday, but Germany's Deutsche Bank AG said they will resume next week.

Foreign banks fear they will be offered less favorable repayment rates than Russians.

The Central Bank said Thursday that $3.6 billion would be needed to bail out the country's banking system. It said it would help the most viable and important banks, as well as key banks in the regions.

Meanwhile, the government lowered import duties Friday on meat, milk and other staples. Russia relies heavily on imports, which have fallen since the crisis and become more expensive as the ruble loses value.

The country has not yet experienced any food shortages, and none are expected. But the government wants to make sure there is plenty of food on hand for the winter.

The Interfax news agency said import duties on meat were cut from 15 percent to 10 percent; on milk from 10 percent to 5 percent; and on butter from 20 percent to 15 percent. Duties on other foods also were lowered.

The government continued talks Friday with officials from the International Monetary Fund. Few details have been released, but the IMF top representative in Russia, Martin Gilman, has said that the question of further IMF loan installments has not been raised.

A $22.6 billion loan package, put together by the IMF before the crisis, was frozen in September after the first $4.8 billion installment.

The IMF has said it will not release more money until it sees Russia's plan for coping with the economic crisis and signs that it is being implemented. Russia has already indicated it is putting together only short-term measures, rather than a comprehensive, long-term plan.



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