The authors of the report identified problems and provided measures that can contribute to improving the stability of the Russian banking sector.
MOSCOW, 13 Oct.Prime. Analytical center for the government of the Russian Federation has prepared a number of possible measures, which are designed to address structural problems in the banking sector, the proposals published in the report “the Crisis and financial stability. The strategy of transforming the banking sector”.
“The events of recent years have changed the economic realities in which the functioning of the Russian banking system. To date, many participants of the banking market there is a question of how quickly they can adapt to changing macro – and microeconomic circumstances and that this will require,” says the study centre.
“The proposed measures are designed to address some of the structural problems typical for the Russian banking sector, and to provide to regulators and financial market participants the necessary conditions and efficient tools of ensuring financial stability,” continue the authors of the report.
PROBLEMS IN THE BANKING SECTOR…
The authors of the study point to a number of problems faced by Russian banks in 2014-2015. The first set of challenges — turbulence in foreign markets: “sanctions war”, the fall in world oil prices, the slowdown of China’s economy. At the same time, experts noted a number of positive features of the current crisis.
“The Russian financial market is not so sensitive to economic shocks in different countries, as it was in 2008-2009. Paradoxically, introduced anti-Russian sanctions restricting access to international capital markets begin to play against major Russian companies, and on the contrary become the protection from turmoil on global financial markets,” they write.
However, the banking system affect not only external but also internal factors, including the state of the Russian economy. A significant factor was a sharp increase in the key rate of the Bank of Russia in late 2014. Finally, the banking sector is faced with structural problems, primarily with the increase in the share of “distressed assets”.
This, in turn, is due to the difficult financial situation of corporate borrowers and the poor situation in retail lending. On the other hand, to increase the loan portfolio of banks is hindered by high lending rates and continued decline in real disposable incomes and wages of the population.
Analysts also point to the fact that Russian banks approached the crisis with a different “safety margin”. “If the largest banks have largely managed to adapt to the current crisis, with considerable government support for most banks from the top 100 worst still ahead”, — experts say the analytical center.
…AND THEIR SOLUTIONS
In addition to highlighting several negative trends, the report presented a number of measures that if implemented can enhance the stability of the Russian banking sector. As a goal the implementation of activities of the analytical center calls the financial stability of the sector.
The first part of the possible directions of transformation of the banking system — macro-prudential policies aimed at early identification of systemic risks in the banking sector. To do this, the centre’s experts suggest, first, to conduct a detailed assessment of asset quality and stress testing capital adequacy and liquidity of the largest banks.
Another suggestion is to tie the contributions to the Deposit insurance system to the risk level of banks-participants of system of insurance and the sector as a whole. In addition, analytical centre proposes to encourage the creation of high-quality and independent credit expertise in the market.
The second component of the proposed policy microprudential supervision, ensures operation of banks in line with the objectives of financial stability and the willingness of banks to crises. Here experts offer to develop plans for the restoration and recovery of the largest banks in case of need, and create measures to support the purchase of weak credit institutions.
The third part of the program is to increase the effectiveness of crisis management. Here, first, it is necessary to develop financial instruments that can be converted into equity in the restructuring of banks.
Second, we need to create a “exchange of assets” as a market platform for efficient trading of distressed and non-core assets. Analytical center for the government also supports the idea of establishing a “Fund of bad assets” for the redemption of collateral and bad assets to the Agency for Deposit insurance (DIA) and commercial banks.
Finally, experts advocate the development of a strategy of financial sector development and detailed policies for financial stability. In addition, it is necessary to draw the attention of banks on quality management the most significant risks and to continue supporting the improvement of risk management of banks by the regulator.