The Russian economy is enjoying a period of stable growth, with national GDP having grown between 5 and 10 percent for the past several years. As the economy has grown, so has the Russian banking system, as assets held in Russian banks have recently grown by about 30% per year.

As the economy continues to grow and the people in Russia become more prosperous, there is little doubt that the demand for banking services in Russia will increase.

The biggest players in Russian banking are still the Russian banks, with foreign banks controlling less than 10% of the retail banking market share. On a comparative basis, foreign banks enjoy a market share of between 60 and 70 percent in many European countries.

Russia is becoming more open to welcoming foreign banks into its borders, since the infusion of capital from these banks would help the Russian economy as a whole. Moscow and St. Petersburg are the two strongest financial centers in Russia, with the majority of big banking business happening in Moscow. Of foreign banks, Citigroup has the strongest presence, with GE Money not far behind after acquiring a lid-sized Russian bank.

Banking outside of the tow large financial centers in Russia is not nearly as strong as it needs to be, but experts agree that banking in more remote areas of Russia will remain weak until the economies in those areas justify a stronger local banking system.

The biggest business for banks in Russia has been in consumer loans, such as auto loans, and credit extended to retailers. Mortgages make up a small percentage of bank business—less than 10% of bank loans outstanding as of the end of 2005 were mortgage loans.

This number is increasing however, as Russians who have benefitted from a growing economy are working toward a goal of owning property. With the opportunities for lending increasing year after year, Russian banks are constantly on the hunt for additional capital. This has improved the banking system, as banks have made their balance sheets more transparent in order to qualify to sell shares to investors and raise their capital base.

Banks interested in building a footprint in Russia have two options. The first is to enter the country and start from scratch, a process that can be painstakingly slow. In addition, a new retail bank in Russia cannot hold retail customer accounts for the first two years of operation, a significant barrier to entry.

Once established, banks are governed by the Central Bank of Russia, a bank that keeps a tighter leash on players in the financial system than most other governing banks worldwide. The second option is to acquire part or all of an existing Russian bank, a faster and easier process, although it can be costly.

The future of banking in Russia is bright. Technology has a great distance to cover before Russian banks have the capabilities of banks in other industrialized nations, but foreign banks are lining up for a piece of the business that is surely on the horizon.