Russia – Speculation intensifies about successor for outgoing central bank governor Ignatiev

In recent days speculation has been heating up in Russian financial circles concerning who will be chosen to succeed departing Bank of Russia governor Sergey Ignatiev, who is due to step down in June 2013 after more than 11 years in the post.

On 21 February Reuters Russia published a report, based on inside sources, saying that the list of candidates being considered by Russian President Vladimir Putin has been narrowed down to a “short list” (шорт-лист) of six candidates:

– Alexei Ulyukaev (Алексей В. Улюкаев, born 1956), presently a First Deputy Chairman of the Bank of Russia

– Mikhail Zadornov (Михаил М. Задорнов, 1963), president of the commercial bank VTB 24

– Andrey Kostin (Андрей Л. Костин, 1956), president of state-owned VTB Bank

– Sergey Shvetsov (Сергей А. Швецов, 1970), presently a Deputy Chairman of the Bank of Russia

– Andrei Bougrov (Андрей Е. Бугров, 1952), Chairman of the Board at Norilsk Nickel

– Sergey Glazyev (Сергей Ю. Глазьев, 1961), an economist and former political opponent of Putin

Sources told Reuters Russia that Glazyev is new to the list, added in because neither Putin nor Prime Minister Dmitry Medvedev is fully satisfied with the other five candidates.  Glazyev, presently a presidential advisor, is known as a “radical economist” and strong proponent of state intervention, and has been critical of Ignatiev’s tight-money policy, claiming that it puts Russian banks and businesses at a competitive disadvantage.  Glazyev has argued that monetary policy should not be used to fight inflation, and that the quantitative theory of money is incorrect because in the history of Russia there have been periods when the money supply grew, but inflation fell.  Another strong opponent of Ignatiev’s high policy-interest-rates is German Gref, chairman and CEO of Sberbank, who holds that the central bank’s high refinancing rates are stunting the growth of the Russian economy.

On 21 February the newssite Argumenty also published a report citing an anonymous Kremlin insider as saying that Glazyev would be the successor to Ignatiev.

In the midst of the ongoing storm of speculation and rumor, the online portals Bankir.ru and Ipocredit.ru have teamed up to launch an online poll entitled “Who will lead the Bank of Russia?” (Кто возглавит Банк России?)  The poll gives respondents a choice of 11 names plus “other”, and also asks respondents to rate the performance of the present governor of the Bank of Russia, Ignatiev, on a scale from one to five.  To vote in the poll, go to Кто возглавит Банк России?

Sources:

Шорт-лист сменщиков главы ЦБР расширился - источники (2013-02-21 19:01)

Кремлевский аноним выдал имя будущего главы Банка России (2013-02-21 20:40)

СМИ: Центробанк России может возглавить Глазьев (2013-02-21 20:13)

Кто возглавит Банк России?

While the press and the financial world are preparing for him to step down in June after eleven years at the helm, in recent days Ignatiev granted a lengthy and candid interview to Olga Plotonova of the magazine Vedomosti (Ведомости), an interview which the magazine published on 20 February.

In the interview Ignatiev gave detailed examples of what constitutes an “inflow” or “outflow” of capital from Russia as calculated in the statistics released by the Bank of Russia.  In response to a question from Ms. Plotonova, he explained that the Bank calculates that in 2012 “questionable transactions” (сомнительные операции) in Russia totaled USD 49 bln, of which USD 35 bln contributed to Russia’s net capital outflow for the year.  He stated that such transactions typically make use of a “one-day company” (Фирма-однодневка) established for the purpose of evading Russian taxes, and that the sorting out of the transactions of such a company is possible only in the case of a criminal investigation.  He stated that the Bank’s analysis revealed that more than half of all the suspicious transactions were conducted by firms that had payment relationships with one another, so he believes these operations are being carried out by a single, well-organized group of persons, and that a serious investigation on the part of law enforcement authorities ought to be able to identify these persons as well as the ultimate beneficiaries of the transactions.

Pointing out that at present banks in Russia do not have the authority to close or suspend an account even if they discover that the true holder of the account is different from the person who opened it, Ignatiev expressed his support for a proposal prepared by the Federal Service for Financial Monitoring (Росфинмониторинг) and forwarded to the Duma by the government that would give banks the authority to close or suspend accounts as well as to refuse to open new accounts if they have reason to suspect the use of the accounts in questionable transactions.

Sergey M. Ignatiev (b. 1948), outgoing Chairman of the

Central Bank of the Russian Federation (“Bank of Russia”)

When asked about the main problem threatening the health of Russian banks today, Ignatiev replied that the problem is no longer non-performing loans but instead criminal bankruptcy.  He said that of the roughly 1,000 banks operating in Russia today the Bank of Russia ends up revoking the licenses of about 30 per year, and he estimates that in three quarters of these cases the bank was deliberately bled dry of assets by its management, while his colleagues would estimate that proportion as even higher.  He pointed out that after problems came to light with Mezhprombank and Bank of Moscow, the Bank of Russia increased the risk weights for loans to technology companies that do not carry out any real activity but merely serve to channel funds.  Yet he believes that the real solution to the problem lies in the certainty of punishment, even if the punishment is not severe, but he admits that to date prosecution in the case of banking fraud has been difficult because the law is complex and investigations require expert knowledge and considerable time.

He indicated that he supports the proposal to raise the limit for deposit insurance in Russia from 700,000 RUB to 1,000,000 RUB (€ 25,000), which he considers a reasonable level given prices in Russia today.

He stated that he believes that the Bank of Russia responded correctly to the crisis of 2008-2009, and that he has no regrets about what was done to overcome the crisis, including the extending of unsecured loans to banks, and adds that the amount of such loans repaid to the Bank of Russia was actually higher than he had expected.

Asked what he will do after his term comes to an end in June 2013, he replied that he is thinking about it but that at the moment still does not know.

Sources:

Interview on Vedomosti site: Интервью — Сергей Игнатьев, председатель Банка России (2013-02-20)

Interview on Bank of Russia site: Интервью Председателя Банка России С.М. Игнатьева газете "Ведомости", опубликованное 20 февраля 2013 года (2013-02-21)

Bank of Russia’s calculations of net capital inflow/outflow of Russia, 1994-2011: Чистый ввоз/вывоз капитала частным сектором в 1994-2011 годах

Mark Pleas

Eastern Europe Banking & Deposits Consultant

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