BANK of Ireland has signed a £2 million agreement with Tokobank of Russia to advise and assist with the Russian bank's development over the next two years. The agreement could lead to Bank of Ireland taking an equity stake in the privately owned bank in the future.
The World Bank and the European Bank for Reconstruction and Development are funding the arrangement under the $300 million (£187.5 million) Financial Institutions Development Project for Russia. So far six Russian banks are participating in the FID project.
Tokobank is the second largest bank in Russia, with capital of $285 million and eight billion roubles. It was set up in 1989 as a joint stock company and is owned by a number of corporate shareholders.
Its largest shareholders are the oil production company, Uganskneftegas with 22 per cent, and the export company Kinex with 18 per cent. Non Russian shareholders account for 18 per cent of the equity including the EBRD which took a 12 per cent stake in September 1994.
Tokobank has 15 branches and about 2,000 employees spread throughout the Russian Federation, from Tula in the west to Sakhalinsk in the east, with distances of 7,000 kilometres and eight time zones between them. Half of its 15,000 customer base are corporate customers.
Under the advisory agreement Bank of Ireland will help Tokobank develop its strategic planning, organisation structure, financial management, loan risk management, marketing, information technology and other key functions. Some 40 to 50 Bank of Ireland Group employees will spend time in the Russian bank.
The contract with Tokobank is one of the biggest of the 23 contracts the bank has in 14 countries through its Bank of Ireland International Services subsidiary (BIIS).
As the Russian banking system develops some of its 2,000 banks will either close, be taken over or merged with other operations and others will grow, according to the managing director of the international development department at Tokobank, Mr Yuri Tatuzov.
About 60 or 70 banks currently have about 80 per cent of the assets of the banking system with a concentration of capital in Moscow, he said. About 300 banks lost their licences last year for mismanagement, losses and other reasons, he added.
Many of the banks will never be able to meet the minimum capital requirements set by the Central Bank of Russia, Mr Tatuzov said. Of the 30 largest banks in Russia, five to 10 are expected to report substantial losses for 1995. There are 136 Russian banks with foreign participation and 28 subsidiaries of western banks operating in Russia, he said.
There has, however, been a delay in introducing modern banking laws, including insolvency laws, which has increased the difficulties of doing banking business in an unstable and unpredictable economy.
