A large number of very different kinds of institutions occupy Russia's banking sector today, but if current trends continue, the country's banking landscape is likely to simplify over the next several years.

Judging by how quickly and how far they have developed, the 1,319 banks that survived the 1998 financial crisis can be divided into several groups. However, two groups predominate – the leaders and the outsiders – and they basically determine the overall situation of Russia's banking system.

The first group includes some 45-50 banks, which make up the core of Russia's banking system. Thanks to these institutions, the sector as a whole has achieved generally positive advancement in terms of main indicators.

The second group includes nearly 400 banks. These have more or less no prospects. They have very limited capital, and their capital will continue to shrink along with their clientele.

Indeed, the number of banks is likely to go down. Currently, the inflation rate and banking margins are decreasing, while management costs remain unchanged. This will inevitably push inefficient banks out of the business. Moreover, this process may gain momentum toward the end of this year and continue over the next two years.

Similar estimates have been made by the Central Bank. Its experts say that Russia's transfer to International Accounting Standards may cause the number of crediting organizations to drop by a third.

Our opinion is that a reduction in the number of crediting organizations in Russia is a natural process. Unlivable banks should leave the market, and the sooner the better.

The role of the state as the banking system's "healer" is to ensure that this process is quick and painless – while, at the same time, protecting the rights of the creditors. Otherwise, the rotten banks may become centers of unlawful activity, such as mediating illegal capital export and tax evasion.