Yeltsin edict to restrict foreign banks draws fire.

MOSCOW - Russian central bank chief Viktor Gerashchenko said he could not understand the logic behind President Boris Yeltsin's recent curbs on foreign banks at a time when Russia badly needs foreign investment.

He also said in an interview that he expected no "correction" in the decree before the Dec. 12 parliamentary elections.

"Foreign banks can do a lot for quick progress in countries going through social, political, and economic changes, just like in Singapore and Lebanon," he said.

"It is not logical for the leadership of my country to decide to cause obstacles for foreign banks, making it almost impossible to come here and operate, and on the other side understand the need for foreign investment in other sectors."

Yeltsin's decree on Nov. 18 imposes offshore status for some of the world's biggest banks, which had already received full banking licenses to deal with Russian clients as well.

Big Players Burned

It states that any bank with more than 50% foreign ownership that had not set up by Nov. 15 will not be allowed to do business with domestic clients, blocking access to lucrative deals in the Russian oil and gas industry.

It also freezes new foreign bank entry until 1996.

Banks that have been burned by the decree include Citicorp and Chase Manhattan Bank, Credit Suisse, ABN Amro Bank, a joint venture with Turkey's Yapi ve Kredi Bankasi, Bank of China and France's Societe Generale Banque.

Defenders of the decree, including Finance Minister Boris Fyodorov, say Russian banks need time to develop the skills and experience needed to compete with giant Western rivals.

Western bankers are still hoping the terms of the decree may be softened.

|Victims' of Politics

The new restrictions are a blessing for Russia's powerful anti-Western banking lobby, which finances reformers in the election campaign, reaps huge profits in domestic banking in the absence of competition, and wants foreign banks kept at bay.

"Foreign banks have become victims of Russians politics," said a Western economist in Moscow.

"All that foreign investors are looking for here is a road map that will not be redrawn overnight."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER