Banks in Russia

Sophico Sichinava

There can be no doubt about the increased significance of banks’ role in Russian economy. According to the official data, such important indicator of banks’ financial state as profitability of banking capitals increased in the first quarter of 2003 to 29%. If this trend continues, the year 2003 will be a banner one.

The trust of population towards banks grows, too. Citizens’ deposits in commercial banks (excluding Sberbank) made up 80 billion roubles in the first quarter of 2000 whereas this figure increased by 110 billion roubles in the same period of 2003. The principal orientation of banks is crediting of non-financial sector of economy. This trend has been preserved till present. The ratio of such credits in bank assets remains at 40% level. It was 26% in 1998 and 30% in 2000.
As for the dynamics of money aggregates, the data of Russian banks reveal the fact that money aggregates will increase by 14,3% for the first five months of this year far exceeding the money aggregates level of previous year. The main reason is the growth of gold and currency reserves indicator through high oil prices and inflow of foreign currency, first of all, in the form of credits and currency. According to the latest data, by 1 June of 2003 gold and currency reserves total 64,9 billion dollars. They increased by 17,1 billion dollars in the beginning of the year and by 13,2 billion dolars ? in 2002.
In May 2003, the real effective exchange rate of rouble dropped to 2,4% yet, according to the “principal directions of single state monetary and credit policy in 2003”, the Russian bank did not plan more than 6% strengthening of real effective exchange rate of rouble in 2003. Thus, there are great reserves, the Central Bank representatives say.
Commercial banks’ import of foreign currency (both dollars and euro) has surpassed export of foreign currency by 1 billion. The data of the Central Bank reveal that the first months of 2003 were successful for the Russian banking sector. Positive development trends have been preserved in the banking sphere. For the four months of the current year growth has been observed in the following: assets of banking sector ? 8%, capital ? 12%, credits of non-financial enterprises ? 5%, populations’ accounts ? 12%.
Some banks estimate that the number of personal bank safes increases sharply. Demand for it reaches 40-60% annually. Therefore, a whole number of the capital city banks took decisions on the significant expansion of their business in this direction.
The situation in bank market can be considered stable. Despite this, the optimal results of the Central Bank test might have another meaning. According to the test results (200 largest banks have been checked), 70% of potential losses fall at the share of credit risks, 25% – at the share of liquidity risks while 5% – at market risks. Bank experts believe that high deviation in the crediting sphere might become Achilles’ heel for the Russian bank system. Policy based on the increase of credit portfolios has already led to results. Credit activities of banks reached 30-50% annually, but last year they fell by 20-30%. According to the half-year results, the indicators will be much lower this year.
The principal issue for Russian banks is competitiveness with foreign credit institutions in the Russian market. Bank experts think, that refinancing is important for Russian banks in this case. Yet work conditions should be the same as in the East Europe. Further capitalisation of Russian banks depends on the existing situation in the market as in reality banks should be based only on one capitalisation source – incomes. Decrease of inflation leads to lower profitability of private banks. Therefore, the only way out is increase of incomes and reduction of expenses.
The main component of bank sector reform and transition to the international standards of single financial accounts (this should end by 2004) has been discussed actively of late.