Guy Norton in Zagreb -

Herbert Stepic, chief executive of Austria's Raiffeisen International, retains an extremely sanguine view of the prospects for the Russian banking industry, despite the recent sound and fury surrounding the dramatic fall in the Russian stock market.

"Russia still offers the greatest potential for the banking industry of any market in the world in my opinion," says Stepic, whose decision to recapitalise Raiffeisen International's Russian operations in the wake of the country's August 1998 default, proved an inspired one and laid the foundations for the expansion of the bank's franchise in Russia where it is now the largest foreign-owned financial institution.

Nothing that has happened in recent weeks has dampened Stepic's enthusiasm for Russia; indeed he is fulsome in his praise of the Russian government's response to the growing problems in the capital markets and banking arenas. While the decision to suspend trading on Russian stock exchanges on several occasion was heavily criticised in some quarters, Stepic says that given the choice between shutting up shop to buy time to resolve problems in the functioning of the repurchase agreement, or repo, market and potentially letting the situation potential spiral out of control, "I would have done the same as the Russians."

With regard to the Kremlin's $200bn or so of support packages for the economy and markets, Stepic says that the speed and resolve with which the Russian government moved to bolster the financial services system stands in stark contrast to the rather tardy and irresolute reaction seen in the US and parts of Western Europe. "The current situation has been handled very well by the Russian authorities and the various packages they have put in place have been good and will help to improve core banking sector liquidity."

While acknowledging that overall asset growth in the banking industry will be sharply down on the 30%-plus levels seen in recent year's, Stepic says that likely annual growth levels of 15% for the next five years will still be a higher multiple of the levels achievable in the US or Western Europe. "Russia simply stays the most attractive economy in the whole region," says Stepic, adding that despite challenging market conditions in the banking sector Raiffeisen is benefiting from a flight-to-quality effect on the deposits side of its business, while also being able to cherry pick the best borrowers on the lending side.