State-owned financial institutions fallinto three main groups: commercial banks, hybrid banks, anddevelopment institutions. The larger state-owned commercialbanks/ groups include Sberbank, the VTB Bank group, andGazprombank. Like private commercial banks, theseinstitutions do not have a policy mandate and are profitmaximizing, and target similar market segments. The mainstate hybrid bank is the Russian Agricultural Bank (RAB),which has a policy mandate to focus on agribusiness, whilealso engaging in broader commercial banking activities. Theprincipal state development institution is the VEB group,which has a broad policy mandate, subject to a legalobligation not to compete with commercial creditinstitutions. It on-lends or directly lends to firms, butdoes not collect retail deposits.1 There are also severalsmaller state-owned banks that primarily engage incommercial activities and are owned by sub-nationalentities. The authorities should continue pursuing thegradual privatization of state-owned commercial banks, aseconomic conditions permit. There may be benefits torevisiting the role and structure of the state hybrid anddevelopment institutions, with corporate governance reformsbeing a priority.State-owned financial institutions shouldnot be used to bail out struggling commercial banks. Inother respects, the administration of financial subsidiesappears to follow a number of good principles, althoughcoordination could be improved. There have been manypositive changes in the corporate governance of state-ownedbanks in recent years. reform of the current ownershipstructure could support the spread of good corporategovernance practices. The composition and functioning ofmany SOB boards is an area that requires attention. Finally,SOB lending to SOEs should be conducted on an arm’s lengthbasis and on commercial terms.
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