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To cite only a few among numerousexamples: JSC Kristall (appointment of a new general manager),Norilsk Nickel (the plaintiffcontested the voting method used by the meeting of shareholders to settle someissues pertaining to therestructuring of the company), JSC Polimerstroimaterialy (attempt to ignore a court ruling), RAO Gazprom,open JSC Mosenergo was prohibited to hold an extraordinary meeting(appointment of a new general manager), preventive arrest of a block of shares inopen JSC Severstal, open JSC Transneft was prohibited to transport Lukoiloil, etc.

In September of 2001, A. Volski, thePresident of the Russian Union of Entrepreneurs and Industrialists(Russ. abbr. RSPP) sent aletter to the RF SupremeCourt asking, first, to limit the right of shareholders – physical persons to fileclaims with courts having general jurisdiction over places of theirresidence and transferproceedings to arbitration courts having jurisdiction over areas where JSCs areregistered, and, second, to prohibit general jurisdiction courts to imposepreventive arrests on companies’ assets.

In formal terms, this was aimed to avoidjuridical collisions arising in case arbitration courts and generaljurisdiction courts (the latter – basing on claims of individuals) make contrary rulings. In thecourse of subsequent court proceedings the shares are under arrest as a preventive measure. Interms of economy, it istrivial seizure of property. It results in uncertainty of JSC economic operations,destabilization, and redistribution of ownership rights. The urgency of theproblem is apparent, therefore as a temporary compromise measure (until the new RF Arbitration ProceduralCode and the RF Civil Procedural Code come into effect) the Plenum of the RFSupreme Court recommended the general jurisdiction courts to refrain from banning meetings ofshareholders in compliance with claims lodged by shareholders – physical persons26.

At the same time, the possibility thatthe federal legislation will be in fact modified by the ruling of the Plenum ofthe RF Supreme Court basing on the RSPP letter (as a precedent) challenges thenecessity to adopt new APC (approved at the first reading in the spring of 2001). Yet anotherproblem is closely related to systemic corruption. In case the new procedure isimplemented, theinterested parties will just turn to arbitration courts to achieve the samegoals27.

At the background of innovations approvedin 2001 and their potential development the popular idea to adopt a RussianCode of Corporate Governance (Practices) does not seem urgent28. Theexisting OECD Principles of Corporate Governance summarizing the best corporate practicessuffice as a guidelinefor corporations under the present conditions in Russia.

The formal advantage of companiesintending to follow the recommendations set by the Code will be the formation of a positive imagefor the foreign investment community. In this sense, the national Code is ausual formal signal for potential investors about the situation in the country. Accordingto a McKinsey survey of 200 largest world investors (aggregate assets at US $ 3.25 trillion),75 per cent of investors rank the quality of corporate governance at the samelevel as financial and economic results, while giving priority to the factor ofcorporate governance in transition economies. As concerns the price of shares,80 per cent of investors are ready to pay extra price for the quality ofcorporate governance withthe resulting capitalization premium reaching from 20 per cent (in countrieswith developed corporate culture) to 50 per cent and more (emergingmarkets)29.

For these purposes, many largest Russiancompanies already adopted similar codes in 2000 and 2001. Moreover,Russia’s companieswill adopt certainprovisions of the unifiedCode only in case they become interested in these provisions due to a number of factors andin the course of consolidation of corporate control. The observations made in 2000through 2001 demonstrate that the formal transparency and openness of manycompanies for minor shareholders increased as they consolidated overall control and, inparticular, assets of their subsidiaries. The determining factor is, obviously,consolidation. Therefore, the squeezing out of minor shareholders becomes aprerequisite of improvement of their protection.

Such a Code may exist only in the form ofrecommendation, however, it seems impossible that a company involved incorporate conflicts or in anticipation of hostile takeover would comply even with legislativeregulations, not to mention recommendations. It means that the formation ofcorporate culture spontaneously progresses as Russia overcomes theobjective problemsarising in the course of ownership redistribution. This argument is directlyrelated to the generalproblem of protection of shareholder rights.

On the other hand, attempts to use theCode’s provisionsas a mandatory external mechanism of corporate governance (in this case via the stockmarket) will not become effective for a long time yet. For instance, therequirement to allowaccess to listings of stock exchanges only on condition of compliance with theCode’s provisionsis not feasible as a mass standard instrument because the market is non-liquid and extremelynarrow. First, an apparent trend to concentration of joint stock capital, and,second, the process of closing open JSC created in the process ofprivatization are the objective base for this.

Therefore, it is apparent that there arethe objective limitations for implementation of the Code. The assumption that the Code will onlycontribute 5 to 10 per cent in the development of the Russian stock market andits attractiveness forlong term investment30.

On the other hand, the educationalsignificance of the Code may prove useful already at the current stage, whileits effectiveness will depend on compliance with the following principles:

- the Code’s requirements shall be viewedonly as recommendations and shall not imply any penalties for non-compliance(stipulated by the legislation or departmental regulations);

- there shall be no overlapping ofcorporate and related legislation;

- in the process of accumulation ofpositive practices, there shall be selected viable (under Russia’s conditions) provisions of theCode for subsequentincorporation in thelegislation.

4.5. Banking Sector

The banking sphere showed controversialtendencies in 2001. On the one hand, in the past year the Central Bank ofRussia registered almost three dozens of new credit institutions. Given a smaller number of revokedlicenses, the overallnumber of banks increased (from 1,311 as of 1.01.01 to 1,319 as of 01.01.02).In the past year, ARCO completed rehabilitation of a number of banks that fellunder its administration as a result of the 1998 crisis (Table 1). At the sametime, the list of banks that forfeited their licenses came to include MOST-bankwhich no earlier than in the mid-2000 was rated as one of the top thirty banksby the level of assets. The failed attempt by Vneshtorgbank to rehabilitate this bank appears tosuggest that by far not all effects of the 1998 banking crisis have beenovercome, despite the favorable environment in 2001.

Over 11 months of 2001, assets in theRussian banking systems grew in constant price terms by 12.8% (in 2000, overthe same period, assets grew by 25.5%). In percent of the GDP, aggregate assetsof all active banks stood at 31% (in 2000, the value was 30.3%). For the firsttime in recent years, the capital of the banking system grew at a higher rate(Fig. 2). The net worth of the active Russian banks increased over 11 months by23.7% in constant prices. In the same period of 2000 the growth constituted19.2% in constant prices.

The capital ratio of active banks improvedfrom 14.1% at the end of 2000 to 15.4% by the end of 2001. The pre-crisislevel, however, has not yet been achieved (by the end of July 1998, the ratiostood at 19.1%). As for the capital adequacy ratio stipulated by the CentralBank of Russia, because of the low risk of assets, the overwhelming majority ofbanks had no problem in complying and even topping the requirement.


Disposal of banks under ARCOadministration in 2001

Name of bank

Date of sale


ARCO’s interest in the capital priorto auction (in %)

Sold (in % of authorized capital)

The amount paid (mln. rubles)




















25%+1 share



Petr Pervyi (Peter theFirst)



75%+1 share












50%+1 share





Moscow inter-republicandistillery


36.596 and an option for9.5




Almas-trust (trustee ofNRB)






Source: Finmarket

The aggregate balance capital of activeRussian banks as a percentage of the GDP was 4.8%31, which is slightly higherthan the value of the ratio as of the end of 2000 (4.2%). However, capital toGDP ratio and capital to aggregate assets ratio are still off the pre-crisismark (about 5% at the end of 1997). For the change in the asset aggregate andcapital in constant prices, see Fig. 1.

Still another typical pattern in theRussian banking sector in the past year was almost a two-times faster growth ofthe aggregate balance capital compared to the growth of authorized capital,which during 11 months of the year had only a 5 % rate. This fact suggests thatcapitalization of Russian banks in 2001 was rather from internal sources offinance (e.g., revenues) than from additional contributions by shareholders.

Fig. 1

Changes in the level of asset aggregateand balance capital of active Russian banks (in billion rubles of constantprices)

1 - assets

2 – balance capital

Fig. 2

Rate of growth of asset aggregate andbalance capital of active banks in constant prices (%)

1 – assets growth rate

2 – rate of growth of balancecapital

But the most tangible positive shift inthe post-crisis tendencies affecting the banking system was a relative expansion in lending to the non-bankingsector. The aggregate loans portfolio over 11 monthsof 2001 in constant prices stood at 25.4%. It is less than in 2000 when theratio was 34.6 %. However, in 2001 credits to the real sector of the economygrew faster than the overall growth of assets. As a result, the share of loansto the non-banking sector in the assets rose from 40.8% in the beginning of theyear to 45.4% in early December (11% growth). At the same time, bankinganalysts were proved wrong in their forecasts: the share of bad loans in thebanks’ loanportfolios did not change much (3.0% in the beginning of the year, and 2.9% inDecember). If one is to exclude Sberbank and banks under ARCO administration,the growth in the share of loans to the non-banking sector continued: at thestart of 2000 it grew at a rate of 36.8%, and by December, it was 42.7% (agrowth of 16%), whereas the share of bad loans in loans to the non-bankingsector both in the beginning of the year, and by the end of November remainedat 2.1%.

Typical for the foreign exchange structureof the loan portfolio was the continued growth in ruble loans. While early in2001 their share in the overall loans to the non-banking sector was 64.5%, byDecember it reached 68.1% (less Sberbank and ARCO-administered banks: 58.7% and61.5%, respectively).

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