Banks Seek Licences in London

It was practically inevitable: the well-heeled young turks of Russia's banking world, on the quest for (in search of) the elusive prize of a prestigious British licence, are setting up shop in London.

Six of Russia's leading financial institutions now have London representative offices, which although prohibited from conducting commercial operations offer a high-profile avenue for (possibility) courting government regulators¹ and potential clients.

"London is the oldest and best-known financial center in the world," said representative of Alfa-Bank, which opened premises in the City Tower in the heart of London's banking district earlier this year. "If you have Bank of England recognition, you are recognized by everyone."

The Russian banks, however, face a difficult task in winning a foreign operating licence. They have to show that they have not come to launder money, and they have to reconcile their Russian accounting practices with (зд. привести всоответствие) the Western accounting system.

"The principal concern of the Bank of England must be criminality," said a source at a U.S. bank with interests in London and Moscow, who asked not to be named. "Ownership of Russia's banks is very opaque. You cannot tell if the shareholders include mafia elements."

Alla Haines, a specialist on Russian banks with the respected IBCA rating agency, said: "There are a lot of suspicions regarding Russian banks. People don't know much about them here. The main problem is one of attitude (position)."

The Bank of England itself refuses to comment on specific problems with granting licences to Russian banks, but the requirements it spells out are strict.

The chief technical obstacle is the Risk-Asset Ratio, or RAR, of Russian banks, which measures an institution's capital base against its risk-weighted outstanding loans. A bank cannot obtain or retain a licence if this ratio falls below a certain level, set at a minimum of 8 per cent in the international Basle Accord on banking norms.

Many Russian banks currently meet the 8 per cent threshold, according to the IBCA. But the Bank of England fears sudden upsets. "The situation would need constant monitoring, since high Russian inflation tends to make a bank's lending grow faster than its retained earnings," said another IBCA specialist.

Another obstacle is the state of the bank's internal accounts. "We have only two years of Western auditing, and a minimum three years is required before the Bank of England will consider granting a licence," an Alfa-Bank official said. "The Bank of England has told us to establish a relationship with it before submitting any application."

Fear that Russian economic instability could spread to the West through licenced Russian banks is another factor. Haines said the recent interbank market crisis in Russia when liquidity dried up and loans between banks grounded to a near halt, "slowed down the licencing process."

Western bank supervision agencies will feel more comfortable about licencing once the Russian authorities have set up supervisory norms corresponding to those in the West.

TheRussians seem to be sparing little expense in making their presence felt. Although use ofthe offices is limited to information gathering and meetings, they also have a showcase value: Alfa's City Tower premises are down the corridor from the Bank of England itself. Promstroibank is in Mayfair.

Many of banks establishing themselves in London already have set up in Germany, currently home to a dozen representative offices. But the banking authorities there, too, have made it clear that they are not yet ready to consider licence applications from the arrivals.

Комментарии representative office – представительство;

young turks – «младотурки» – радикальное движение в Турции начала XX века; пер. – молодые энергичные деятели, стремящиеся порвать с прошлым;

to set up (shop) – зд. обосновать;

courting = wooing, зд. налаживать контакты;

opaque = vague;

capital base – основной капитал;

outstanding loans – невозвращенные кредиты;

Basle Accord on banking norms – Базельское соглашение о банковских нормативах;

threshold = level criterion;

upsets = problems, snags;

internal accounts – внутренняя отчетность;

liquidity - наличность;

grounded to a near halt = practically stopped, discontinued;

showcase value – зд. prestige (cp. offer high – profile avenue);

to spare little expense = to stop at nothing.

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