Only two of Russia-based accounting firms, surveyed by Interfax, conducted IAS audit for only five banks. Thus, on the whole no more than 140 Russian banks went through IAS audits. About a quarter of them are listed below.

IAS is not a cure
Implementation of IAS does not guarantee quality analysis of a bank's financial performance. It is often hard to draw the real picture from the balance sheets and income statements, even when they are of IAS style. Meanwhile, banks do not normally supply their counterparts in interbank market, or any others, with other reporting forms.

Notes to the financial reports can cast a light upon the bank's performance, but it depends on how correct the real situation is reflected in the reports. This is why we will consider only those banks who's IAS reports have been audited.

Another problem lies in the essence of the international standards. They include a major part of subjective analyses, for example, in the case of classifying the assets. IAS is a collection of rules, and an auditor or the bank can choose which ones to use or neglect. In 2000 auditors here decided to use IAS29, which is designed for high inflation situations. Bankers say this actually lowers the asset and profitability assessments. However, this is not true for all banks. Sobinbank and Novosibirsk Vneshtorgbank, while using IAS29 for the performance indicators recorded figures higher, than those obtained according to the Central Bank methods.

Also, auditors had different approaches while using the IAS29, and that does not allow to compare reports of different banks. Deloitte&Touche did not use the standard for Russian banks. Quite often it is impossible to implement IAS29 because the auditor does not have all information at hand. An Andersen could not use the IAS27 subsidiaries' consolidation standard for Moscow Industrial Bank due to the fact that the affiliates of the banks did not go through the relevant audit.

Consolidation can affect the performance indicators of the bank, especially when the profit centre is not the bank itself, or when the bank is used for financing troubled businesses. At the same time, if the consolidation shows nicer figures for the bank than it had before, creditors will not necessarily be happy about that. Russian practice shows that when the bank's performance deteriorates, assets can be instantly drawn from the bank, while its subsidiaries are under even lesser supervision.

While examining IAS reports of Russian banks, one should keep in mind that some principles of IAS are valid only in the legal framework of the developed countries. If the consolidation results show poorer performance of the bank, they should be examined more thoroughly, but if they have better indicators, they do not lead to creditor protection.

Another problem with comparing statements from various banks is that part of them uses dollar figures while others prefer roubles. Although it is no big deal with IAS 29 which tries to bring the value of national currency in high inflation environment in line with its real value at a certain date. Thus assets and the profit, while calculated in this way, can be compared with the dollar figures by simply using the exchange rate at the end of the period in converting the figures from one currency to other. This can be reached only with IAS29.

Profitability lower than risks
The top positions of our list are occupied with the Russian banks from the Banker magazine's biggest banks list. The banks with biggest assets are Vneshtorgbank, Sberbank, Gazprombank, Sobinbank, and MDM-Bank. Rosbank occupies the fifth place, while it was not included in the Banker's list. But since it did not use IAS29, its reports can not be compared with the above banks.

Apart from absolute figures, relative indicators are also important. Citibank (Moscow) had the best results for the profitability. Its return on assets was 4,2 times higher than the average in the group and the return on capital was five times higher. MDM-bank was second-best with its figures for the return on assets, Alfa-bank had the same position for its capital profitability. However, it is important to take into account related risks while looking at the profitability indicators. International Moscow Bank (IMB) with its very conservative principles of funds allocation had relatively small return, a scant 0.9 percent, but return on capital was more impressive which brought the bank to the third position in the list. The relation of capital to assets can also indicate the level of risk at the bank. However, it is not an analogue for the Basel Committee's capital sufficiency coefficient, which calculated assets according to their risk level. It is a more accurate technique and better reflects the situation at the banks.

Two banks with the lowest capital to asset ratios (Surgutneftegazbank and IMB) deposited most of their assets with foreign banks as well as on their accounts in the Central Bank of Russia. This reduces the value of denominator in the calculation of the capital sufficiency coefficient. Banks with higher capital to assets ratio, like Vneshtorgbank, also had a conservative attitude in placing their assets. That is why Vneshtorgbank was among the top banks in the Banker's list with its indicator of capital sufficiency.

This high level of capitalisation resulted in higher indicators for profitability for these three banks than the average figure for the group, while return on capital was lower. However, higher capitalisation of Russian banks when compared to foreigners does not infer lower risks. Russian banks have higher risks due to their policies of asset placement, limited possibilities for risk diversification, poor legal framework and unstable economy. Russian banks in The Banker's list published before the 1998 crisis were among the most highly capitalised. The list published in July 1998 included 12 Russian banks, nine of which shut down after the financial crisis. Therefore, even IAS-based indicators of reliability for Russian banks should have some further consideration.

The IAS-based figures for profitability of Russian banks are low and often lag behind the same indicators of western banks. The profitability of Russian banks calculated with IAS is not very high and often lags behind the profitability of the world's biggest banks. The return on assets for Citibank (Moscow) in 2000 was 2.3 percent and the profitability of capital was 38.8 percent. On average, return on assets in Russian banks was 2.2 percent and return on capital was 17.4 percent. Considering greater system risks in Russia, the risk-adjusted profitability of Russian banks to is far less then compared to world's biggest banks.

Good news to creditors

However, even in Russian reality international accounting standards can improve the quality of information for the creditors, but the data they get should not be limited to the balance sheet and the profit statement. Notes to the financial reports contain the most valuable information, this is why banks are reluctant to reveal them.

When someone says that the implementation of international accounting standards will make the bank capital indicators "negative", they fail to understand that IAS does not phisically reduce the capital, it just reveals its real value. The calls to put off introduction of IAS on the ground that it will affect the capital of Russian banks, are senseless.

Moreover, our analyses show that 14 of the 30 banks surveyed had capital indicators higher with IAS than with Russian accounting standards. At the most advanced Russian banks, IAS did not cause capital to plummet. On average the banks that revealed their data for the survey, saw a capital drop at a mere 11.2 percent. When Alfa-Bank is excluded, the overall drop in capital amounts to a meager 0.2 percent.

IAS cast a light upon the emerging problems of a bank, by providing clear indications. Russian accounting standards can reveal only some indirect signs of the troubles that the bank is likely to experience. Despite all the issues, the introduction of international accounting standards is an important step in Russia's banking reform. Still there is a hard work to do with the market infrastructure for it. As for now, greater part of the 1,300 banks in the country and their auditors are not ready for IAS.