A purge of Russia's banks not finished yet

MOSCOW: When Elvira Nabiullina took over the governorship of the Russian Central Bank (CBR) in 2013, she faced a bloated and leaky finance sector with over 900 banks. Since then, more than 340 have lost their licences. Another 35 have been rescued, including, in recent months, Otkritie, once the country's biggest private lender by assets, and B&N Bank, its 12th largest. The costs have been steep. According to Fitch, a ratings agency, over 2.7trn roubles ($46bn, some 3.2% of GDP in 2016) have been spent on loans to rescued banks and payments to insured depositors. Fitch reckons another few hundred banks could go before the clean-up concludes. More large private banks are whispered to be among them.

The CBR has rightly been praised for preventing a wider crisis and undertaking a clean-up during a punishing recession. Non-performing loans are at a manageable level, of around 10%. Bringing Otkritie and B&N under CBR stewardship calmed panicked markets. Yet nationalisation also raises questions about oversight and competition. Alexei Marei, recently departed chief executive of Alfa-Bank, now Russia's largest private bank, has called the CBR's dual role as regulator and owner an "enormous conflict of interest". The share of the state in the banking industry has climbed to about 65%. Ms Nabiullina herself admits the need to bring it down.

Such concentration in state hands is not new. Russia's banking sector has long had a chaotic private sector and an outsized, though stable, state one. It is anchored by a well-run behemoth, Sberbank, the successor to the Soviet Union's savings banks, which controls about one-third of banking-sector assets. In the wake of the Soviet Union's collapse, more than 2,000 new banks popped up, many engaging in speculation, asset-skimming and money-laundering.