Bloomberg News

Russia to Deploy Bank ‘Commissars’ to Oversee Government Funds

January 23, 2009

Russia’s central bank will deploy “commissars” in the coming days to monitor the use of government funds allocated to boost liquidity in the banking system.

Bank Rossii will send representatives “in a matter of days” to 150 banks, including 90 based in Moscow, Alexei Simanovsky, head of the central bank’s regulatory division, told reporters yesterday. The number of envoys assigned to banks will be based on the amount of received government aid, he said.

“The envoys will not be involved in the banks’ operational activity,” Simanovsky said. “They will oversee the extent to which the lenders abide by the central bank’s recommendations” to increase loans to Russian producers and not convert the government funds into foreign currencies.

The representatives will report their findings to the central bank and the information can be shared with other government agencies, Simanovsky said.

Russia may allocate another $40 billion to shore up the banking industry, Finance Minister Alexei Kudrin said on Jan. 19. In October, President Dmitry Medvedev earmarked 950 billion rubles, then worth $36 billion, in five-year loans to the country’s biggest banks. The package allocated 500 billion rubles to OAO Sberbank, 200 billion rubles to VTB Group and 25 billion rubles to Russian Agricultural Bank, with the rest going to non-state lenders.

“The main risk is that the government will interfere with the business more aggressively going forward,” ING Groep NV analyst Andrzej Nowaczek said by telephone. “They can ask VTB to subsidize the borrowers, for example.”

The envoys won’t tell banks how to use the money “unless the loans were extended by the government for a specific purpose,” Simanovsky said. The representatives are empowered to attend the lenders’ board meetings, he said.

“As long as they maintain this limited function and use it, for example, to prevent currency speculation, the program may be successful,” Rustam Botashev, a banking analyst at UniCredit SpA in Moscow, said by phone.

To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net.

To contact the editor responsible for this story: Chris Kirkham at ckirkham@bloomberg.net.


Video Game Avenger
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus