The bill on securitization of financial assets was passed by the State Duma in second reading. Amendments provide for changes in Russian Tax code (T.C.) and Civil Code (C.C.), focused on the attraction of additional financial resources to Russian economy, as well as on the widening of the range of securities available for investors.
CEO of the Russian Direct Investment Fund (RDIF) Kirill Dmitriev, speaking of the intent of securitization, points out that banks, providing loans, should have an opportunity to sell them to somebody then. Currently, such opportunity is limited for credit institutions. Virtually the main point of securitization is the right of banks to resell credits and to buy new credits on the funds received. Therefore, the mechanism of securitization will allow banks to provide much more credits.
So new articles are introducing to the C.C. within the context of the bill, which establish a procedure of opening, keeping and closing of a nominee account by the bank. The nominee account can be opened for its owner for performance of transactions with finances, rights on which belong to another person (to beneficiary). Moreover, within the context of the nominee account agreement, the bank could be obligated to control the use of money by account’s owner on behalf of the beneficiary, who has a right to demand from the bank the provision of information constituting banking secret. By the termination of the nominee account agreement the cash balance is transferred to another nominee account of the owner or given out to the beneficiary.
Also amendments affect the federal law «About securities market». A new chapter is added to the law, in which it is described the establishment procedure of two types of business entities - special-purpose financial entity and special-purpose entity for project financing.
According to the new bill, purposes and subject of the activity of special-purpose financial entity will be the acquisition of property rights and demand of the fulfillment of obligations by debtors, including future rights, which will appear from current and future liabilities, as well as realization of the issue of bonds secured by mortgage of receivables.
As to the special-purpose entity for project financing, so the subject of its activity will be financing of long-term (not less than three years) investment project by the acquisition of book debts, which will appear on grounds of the realization of property created in the result of project implementation, and the issue of bonds secured by mortgage of receivables and other property. Also the amendment spells out the procedure of establishment, functioning of entities and special procedure of their bankruptcy. According to the opinion of Kirill Dmitriev, the establishment of entity for project financing would let attract money to projects much faster and effective. For example, it would be possible to take an on-coming property project as collateral.
Within the context of changes in securities legislation, special priority is given to banks-originators, i.e. primary creditors, which would be obliged to keep 20% of assets on the balance sheet by the securitization. Apart from situations when the matter is about infrastructure projects, for these cases the standard in 10% is prescribed.
A new article is also added to the law «About securities market», which spells out the introduction of individual investment accounts. It is assumed that individual investment account will be opened and kept by a broker or trustee on the ground of separate brokerage agreement or securities trust management agreement. Natural person has a right to have only one agreement for keeping of the individual investment accounts. In case a new agreement will be signed the old one must be terminated within a months.
Changes will affect also notaries in private practice and notary chambers, which will be allowed to sign and extend the premises lease agreements, being publicly and municipally owned and using by them for notarial activities, including for safekeeping of the archive of notarized documents, without holding competitive tenders and auctions. Also the notaries could privatize premises, occupied by them more than 3 years, at market value.
In case the law would be passed in three readings, it could come into effect already on 1 July 2014. As to experts, suggested innovations would ease the access to financing for small and medium-sized enterprises.
According to the Minister of Economic Development Aleksei Ulyukaev Russian economy could show a little bit better result by the end of the year, than for all last months, when the economic performances were just worsening. In light of the fact that industrial production has declined (for the first time since the beginning of the year) by 0,1% in January-November, the statement of the Minister looks very optimistic in this context.
GDP (Gross domestic product) has increased by 1,4% for 10 months of the current year, and in October – by 1,8%. Most probably it wouldn't succeed to reach the planned performance by 1,8% at year-end anymore and the domestic product would show positive dynamics by 1,5%. Now therefore, some recovery of the economy is expected in October-December, though weak, but at least. There are some reasons for it.
First of all, pleasant situation in the agricultural sector: after rains at the beginning of autumn, which hindered harvesting operations, agricultural industry showed double-digit growth in October - 26,3% on an annualized basis, that in itself is an excellent result.
Moreover, it is observed the improvement of investment demand in last months of the year, in which the investment program of Gazprom has no small share.
On top of that, it is observed the retail trade recovery: in October the turnover growth was speeded up to 3,5% on an annualized basis against 3% in September. And in view of coming traditional Pre-New Year clearance sales, the analysts of the Agency Credinform forecast if not bigger, but surely attained level of dynamics in the retail field.
All mentioned positive signals will help domestic economy to finish the year on an up note, but they are short-term. It must be stated, that general position of affairs is not so bright.
First of all, the decline of capital investments is speeding up – in October it was -1,9% on an annualized basis, while in September the figure was -1,6%.
The unemployment is continuing to rise, in October it reached 5,5%. In view of the decrease in industrial production this fact is not surprising.
And, perhaps, the main determinant, which could play a low-down trick with us in the long-term outlook, is the growth of bank crediting of natural persons, that reached on an annualized basis 30% in October. Surely, loan proceeds can spur the consumption now, but along with this the risk of loan default grows up, that will have an impact on the banking sector in some or other way. On the back of economic stagnation, similar practice of credit institutions seems to be highly risky.