Foreign Banks

Foreign banks have been playing an increasingly important role in the economy of developing and emerging countries since the 1990s, when their share in the banking sector of these markets began to grow significantly. In Russia foreign banks firstly entered the market after the collapse of the Soviet Union, but did not get involved into operations with the Russian ruble and focused mainly on large corporate clients, as Russian banking market was extremely underdeveloped and only started its formation. The considerable expansion of foreign banks took place in the 2000s, after the recovery from the 1998 crisis in the country. This period can be considered as the start of Russia’s financial globalisation.

The problem of the benefits and downturns of foreign bank’s is of paramount importance nowadays, in particular for students, local banks and governmental structures. The impact of foreign financial institutions on the economy of Russia and future prospects for their activities in the Russian banking market have gained considerable significance and need detailed examination. There are no comprehensive studies focusing only on Russia but some works that have included Russia in the sample for a cross-country research or focused on one of the aspects of the Russian banking sector, such as competition, efficiency, bank ownership and other. Thus, this study is aimed to fill the gap of knowledge and examine determinants of foreign banks’ expansion in Russia, their impact on the host country’s economic development, and prospects for future activities.

For this purpose the research follows three steps. Firstly, it focuses on the determinants and constraints of foreign banks’ expansion into Russia. The second step examines the impact of foreign banks on Russia’s economic development. The linal step in the analysis is assessing future prospects for foreign banks in Russia through examination of the potential benefits and threats of the banking market’s liberalisation. This problem is crucial in the context of Russia’s accession to the WTO.

Determinants and constraints of foreign banks expansion in Russia

The first step in the analysis of the prospects of foreign banks’ in Russia and their impact on host country’s economic development is the examination of determinants and constrains of the given process. The analysis of the literature on the foreign banks has revealed the three prevalent determinants of their internationalisation, namely the integration between countries; host nation’s opportunities or location-specific advantages; and ownership-specific factors, connected with competitive advantages of foreign banks. This section will examine how and to what extend these determinants are applicable for the Russian banking market.

As of April 1, 2012, 234 credit