The global financial crisis hasn’t affected Russia’s banking sector, said Georgi Medvedev, vice chairman of the Association of Russian Regional Banks (ARB), in a keynote speech this morning at the Canada Eurasia Russia Business Association conference, held at the Ontario Investment and Trade Centre in Toronto.

Established in 1990, the ARB, a non-governmental, non-commercial organization, is the first federal banking union in the history of modern Russia and unites more than 400 banks and credit organizations from Sakhalin to Kaliningrad. It works with the Central Bank of the Russia Federation (Bank of Russia), the main government regulator, to help stabilize the banking industry.

“The crisis hasn’t really affected a large part of our society,” Medvedev said, in response to an attendee’s question about how the Russian banking sector has been hit in the current liquidity crisis.

“We don’t have a crisis of liquidity, we have a crisis of trust,” he said, where banks don’t know who to give money to. Financial education among Russian citizens is so low, according to Medvedev, sometimes people don’t understand they are required to repay loans, even when they lose their jobs.

“The majority of the population doesn’t know what a (bank) card is, they wouldn’t even know if they fell over it,” he said, with 60 million Russians without a credit card or debit card.

Due to the lack of accessible financial services, Russian banks earn profit margins of 70-80% on their day-to-day transactions, where as they only earn a 30% to 33% profit margin on loans.

For the sector’s profitability to improve, according to Medvedev, financial education for the general public is key, as well as mimicking banking models in other countries, where giving out loans is more profitable than daily transactions. Along with the Russian government, HSBC and Citigroup banks in Russia are working towards improving the public education aspect.

More transparency in lending practices and adopting the Code of Responsible Consumer Lending are other initiatives Russian banks must improve on to be more competitive internationally, he said. “Only 5% to 7% of banks publish disclosure reports of their lending practices and it is not the norm,” said Medvedev. “Banks have to be truthful about the information that outlines their services…we understand the issue of an ombudsman, a person to (inspire transparency) between the banking community and clients.”

These improvements are key to strengthening the industry as a whole. To date, Russia has 1,100 registered banking institutions sand credit unions, a significant decrease from the 3000 it had prior to the “ruble-crisis” stock market crash in 1998. Further industry consolidation will occur, the stronger larger banks get, as they acquire smaller players.

“It was in 1998 when Russia’s market went into default, a soft blow of the current financial crisis,” Medvedev said, “This isn’t happening anymore in Russia, institutions (now) act differently towards international obligations.”