The main aim of the credit system world-wide is to raise investments for the economy of the country. So the credit system should attract clients to borrow money from the bank by offering low interest rates and, simple procedures. The bank has to invent a means of doing that, because the welfare of the bank depends on it. In our city in Russia, it looks as if our credit system is opposed to a European-type credit system and is created to scare off all borrowers with high interest rates and the unwillingness of the banks to give any loans. Now I will show it with facts.
According to the law, credit operations for the private sector exist in our city. Banks should give credit to people to buy expensive goods.24 Yet banks refuse to do that for anyone for any reason, because it does not give them big profits and takes away a certain amount of money for up to 10 years. Thus, this operation is almost nonexistent. On the other hand people rarely want to take such loans. First of all because the companies where they work cannot take big loans for the replenishment of current capital. For this reason, companies have to work on prehistoric equipment, without having any chance to pay suppliers and to pay wages to workers. How can people consider taking a loan for 10 years if they have no stable income? A vicious circle persists.25
The credit system for companies is developed better than that for the private sector. But even to companies, banks do not want to issue any loans because of the high risk of losing money. Before if a bank lost money on loans it was compensated by high profits on the financial market and also by inflation. 'The less the better' became a slogan of the banks. Now they demand a higher security of loans and higher a profitableness of projects. To secure their investments, banks have begun to acquire big packages of shares of the companies into which they invest. So the obtaining of the loans is limited now but the demand for credit is huge.26 Companies are experiencing a shortage in current capital and need money for investments; the private sector is looking for acceptable consumer loans and mortgage loans. Thus, in this situation even at high interest rate loans are difficult to get. Banks create their own rules of giving loans and decide who is worth the loan and who is not. Now it looks as if banks gave a priority to companies which are involved in trade-intermediary activities. Under the conditions of the currency corridor the profitableness of import trade operations is relatively high, and the circulation of the money is quick. Therefore these companies can take short term high interest rates loans.27 ''Incombank'' gave about 45% of its credit resources to such companies. Also, banks still give credits to fuel-power complexes and to metallurgical companies. To finance these companies ''Incombank'' gave up to 30% of its resources.28
While giving loans, banks take into consideration the security of the loan as well. This is a well-established practice in all banking systems. But in Russia banks choose to take only real estate and property as security. The terms of loans are also peculiar in Russia. The loan has to be not more than 70% of mortgage, and the interest rate is floating from 25% up to 35% a year on currency loans and from 100% up to 180% a year on rouble loans.29 But as the demand for loans is huge, banks feel like kings, because whether or not a company depends on their decision. This leads to demoralization and corruption in the banking system, even though each banker signs the honor code of bankers in the ''Association of Russian bankers''.30
Cash operations in Russia also operate on a low level. In consequence of the shortage of money, almost all deposit money is given away as loans and investments. So it often happens that a bank does not have enough money to pay out to clients. Even the existence of the federal bank reserve requirement (10%) does not scare banks and they often have less cash.31 The run on a bank has become a common practice in our banking system and banks have become used to it. Nowadays people can get only up to 1000$ on first demand, and they have to order any amount of money higher than 1000$ in advance. They will have to wait for their turn to get the money. The government even sets a time limit for this operation: up to 5 days.32 Yet banks often break that law, excusing themselves with a shortage of cash money. Also, the owners of credit cards have problems with getting money from them. In spite of the fact that the banks have signed an agreement with the European banking system about cooperation, banks in Russia do not execute that agreement. In our banks even the owners of gold credit cards with the limit up to 25000$ can take only 5000$ per operation on general foundations.33 That means that they have to wait up to 5 days each time to get 5000$. According to the agreement and to the law banks have to pay out the amount of money in the limit borders immediately.34
From additional operations banks commonly practice only currency operations, because they do not have licenses for other operations.35 Even currency exchange presents a lot of problems for individuals. First of all people have to bring their passports for that operation or for registration of any kind of exchange in tax agencies. Thus, the privacy of that operation has disappeared, and that leads to the development of that operation on the black market. If banks go on creating impossible conditions for clients that will lead to the development of these operations on the black market and, therefore criminal groups, instead of banks, will invest the huge profits in to the industry.
Non-traditional operations in Russia do not exist at all. Or rather they are written down in regulations for the banks but the demand for these services in Russia is zero. This is because no one trusts the banks and banks do not want to practice that activity either, because of small profit. In our city not a single bank has in its staff a person who is occupied with one of the non-traditional operations.36
Having analyzed the information I can now show it in simple data-bases. To answer the question if the Russian banking system is fully developed, I will compare the theory of generally accepted European banking services to the results of my essay.
The Russian banking system:
2.Payment operations for companies:
As we can see there are a number of differences between the Russian banking system and the European banking system. This means that the Russian banking system has not fully developed yet.
According to my research the Russian theory of the banking system differs from the established facts. The final results I can show on the following data base.