Center-Invest: Banking in Russia Using International Accounting Standards

Vassily Vysokov

The western media is sometimes preoccupied with Russia's black economy. Today, while there is a substantial degree of black economic activity, there is a far greater proportion of fully regulated and legal economic activity that fulfils all Russian regulatory standards as well as compliance with the tax code. An increasingly large number of companies are operating at international levels of transparency and financial accounting.

Harmonized Practices

In analysing the Russian banking sector, one must consider that many banks are now operating in full accordance with two sets of standards; the Russian Accounting System (RAS) and International Accounting Standards (IAS).

The key differences between RAS and IAS are: where RAS ignores inflation and relies heavily on fulfilling the letter of Russian legislation. IAS emphasizes the true underlying economic activity of the firm. Accounts prepared to RAS standards are intended to satisfy the requirements of tax inspectors and banking regulators. Accounts prepared to IAS standards are aimed more at external investors such as shareholders, creditors and potential business partners. As a result, preparing accounting to IAS standards requires a far greater degree of discretion, risk-analysis and meticulous analysis of a bank's economic activity.

For many of the country's leading banks, such as Center-invest, implementation of IAS provides a high degree of financial control, risk management and greater profitability. The presence of an IAS audit among the leading Russian banks has led to greater confidence with potential business partners and a definite competitive advantage over the banks that have stuck uniquely to the old RAS system.

In the face of declining operating results, Russian banks have been quick to eliminate their IAS reporting. According to data published by the private Russian credit analysis firm Rating Agency, the number of banks reporting results has dropped. In 1996, near the height of the Russian financial services sector's profitability, 84 banks reported IAS results. In 1997 and 1998 the number fell to 46 and 17 respectively.

Results Prove Strength

Center-invest has consistently reported IAS results, prepared by PriceWaterhouse Coopers. The audit«s results show the strong, dynamic growth of the bank»s operations and successful recovery from financial crisis that is evidenced under both RAS and IAS (see table). These successful results are due to the fact that risk analysis and management is the key criteria in the bank«s lending operations. While the lending operations of most Russian banks carry a risk factor of up to 30%, the PriceWaterhouseCoopers report into Center-invest»s operations show that the bank's corporate loan portfolio carries a risk factor of only 10%.

As well as producing successful results, Center-invest has invested in its infrastructure development to ensure long-tem profitability and stability. The Business activities of the bank include an auditing firm, consulting firm, insurance firm, leasing companies, a clearing center for payments made in the fuel and energy industries, a security company and a range of other commercial enterprises. These business activities have a common goal: to provide fully comprehensive financial services to the clients of Center-invest, and to help them effectively achieve their business development goals.

Vassily Vysokov is a Vice-President of Center-Invest Bank in Rostov-on-Don. For further information, please contact: Joint-Stock Commercial Bank Center-Invest, Rostov on Don, Russia; phone: +7 (8632) 67 68 65; fax: +7 (8632) 64 06 40; e-mail: welcome@centrinvest.ru; website: http://www.centrinvest.ru.
This article was also published in Euromoney magazine.