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The Potential Impact of Foreign Banks on the Russian Banking Market

P. 44-55.
Solodkov V. M., Schumann T.

Up to now, the Russian banking market has not been opened up completely for foreign banks. This refers mainly to the still existing restriction to set up branches in the Russian Federation that will even remain in force after the accession to the WTO. There is a fear by many incumbent Russian banks of being crowded out by foreign banks entering the market with low-interest offers for business and consumer loans. Studies of foreign bank entry in other transitions countries have shown that this fear is reasonable. However, from an economic point of view the entry of foreign banks has increased the overall efficiency of the banking markets in those regions and led to a healthy concentration process. Both effects could also take place on the Russian banking market that is characterised by a comparably low borrowing to the private sector and a very high number of small banks.

This article addresses these questions by reviewing the potential effects of fo-reign bank entry in banking markets of transition countries. This is followed by an analysis of the current situation on the Russian banking market which has some peculiarities in comparison to the banking markets of e.g. former socialist countries in Central and Eastern Europe (CEE). This is mainly due to the size of the country and the existence of large state owned banks which are dominating the market.