Russia needs 3-5 years to have healthy banking industry

Russia needs three to five years to create a robustly operating and well capitalized banking system without criminal activity and misleading accounting, Deputy Central Bank Gov. Vasily Pozdyshev said.
With the appointment of Elvira Nabiullina in 2013 as the central bank’s governor came stricter banking regulation and a serious crackdown on banks that are poorly managed and undercapitalized.
The clean-up has continued even as rescues of some large banks, such as Uralsib or Vnesheconombank, were conducted when Russia fell into recession after the 2014 Western sanctions limited access to foreign capital and oil prices fell.
Russia has 603 banks now, down from more than 850 in early 2014, and Pozdyshev said the central bank was only midway through the clean-up — the first phase of making the industry stronger.
“The rehabilitation of the banking sector and its structural reconfiguration will take another three to five years,” said Podyshev, who oversees banking regulation.
“We call it the rehabilitation of the banking sector, some call it a clean-up,” Pozdyshev said. “Dishonest lenders are being weeded out of the market — those are not banks, but in fact, criminal structures.”
He said the central bank had not sped up its license withdrawals because of the current economic crisis.

SERVING ALL

The Russian banking sector is dominated by state-owned banks and large private banking groups. The top six banks account for 69 percent of the sector’s 81 trillion roubles ($1.25 trillion) in assets.
To serve the economy, Pozdyshev said, the system should have three tiers of banks: systematically important, federal or universal banks, and regional banks.
“The paradox is that large customers are too large for our banks, and small businesses are too small,” he said.
With the assets of the whole banking system amounting only to about 100 percent of Russia’s gross domestic product (GDP), the sector is still underdeveloped. Some Western banks account for more than their country’s entire GDP.
The Russian central bank wants to gradually increase banks’ minimum authorized capital to 1 billion roubles from 2018, from 300 million roubles to build up a banking sector that is resilient to economic and financials shocks.
As of Sept. 1, only 320 banks had 1 billion in capital and of those 170 had 3 billion roubles. Some 50 banks had about 700 million roubles in capital and could probably reach the 1 billion level by 2018, Pozdyshev said.
Although data show bank lending is inching up by 0.2 to 0.3 percent each month, any revival in lending will be “very cautious,” Pozdyshev said. He sees credit growth at 5-6 percent next year.
“It will reflect the pace of the economic recovery and a loan portfolio growth rate of 0.2-0.3 percent per month will be a rather long-term trend,” he said.
Russia’s GDP is forecast to contract around 0.5 percent this year before showing moderate growth of 0.6-0.8 percent next year.
Pozdyshev said the central bank would closely monitor consumer lending, which started growing in August, and will adopt “macroprudential measures” if lending in that segment picks up too fast.
“The growth of consumer lending should correspond to the dynamics of household income,” Pozdyshev said.
Russians’ income has been falling, with data showing the amount of real disposable income people had in August fell at the fastest pace in seven years.
Pozdyshev said he expected that next year banks will earn around the same as this year or slightly higher, around 700-800 billion rubles.

Source: Arab News