Local Russian banks are becoming much more involved in import financing by facilitating several types of cross-border deals, including letter of credit (L/C) transactions while there are also signs of revival in the local bank syndications market.

Events in the US and Afghanistan have overshadowed some positive improvements in the Russian economy, where high oil revenues and the accumulation of around US$40 billion foreign currency reserves in the central bank have helped create a framework in which Russia is re-establishing a credible position in international trade.

Reduced prices

According to a manager at one of the few Russian banks not to have defaulted on its international payments in 1998, western banks are once more looking at average margins of 4.5 to 5 per cent for L/C confirmations, thereby reducing pricing levels to those recorded in the mid-1990s.

Because credit remains a key constraint the market still tends to favour state banks National Bank, Sherbank and Vnesheconombank and large banking groups such as Alfa Bank and Gazprombank he says.

For most local banks the ceiling for L/Cs is around US$5 million but potential for more business is enhanced by increased interest and participation in and arrangement of syndicated loans for larger transactions.

Export boost

Top Russian business people are of course keen to see greater availability of L/Cs to boost exports. "The state is interested in the inflow of foreign cash into Russia to lift domestic industrial output," Andrey Beliyaninov, chief executive of Russia's state arms exporter Rosoboronexport told a reputable Russian business daily. "By developing our large military industry, which is very much export oriented, we will improve the living standards of many Russian regions," he added.

In an interview published in November in Vedomosti, Beliyaninov said that Rosoboronexport's revenues had totalled US $3.6 billion so far this year but he sees a problem with L/Cs. "Many L/Cs negotiated abroad simply do not work and our goal is to move such transactions to Russia, to those domestic banks enjoying international acclaim," he said.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DCPRO.