What will happen to the Russian banking sector?
The volatility of currency and commodity markets, macroeconomic instability and a number of other factors have a negative impact on the Russian financial sector. Small credit institutions become harder to survive, and, according to the expert forecast, the number of banks in Russia will continue to decline. The consolidation of assets becomes one of the ways to survive in difficult conditions, which, however, has negative consequences for the banking industry.
Crisis recovery. The first half of 2016 was marked by the growth of banks' revenue. After extremely difficult 2015, the sector began to come out of the recession, and for the first half 2016 the profit of Russian banks amounted to 360 billion rubles - 7 times more than the same period of the previous year and for the entire 2015 as a whole. The financial results of credit institutions show a positive trend thanks to the balanced interest-rate policy, which stimulated the growth of net interest income, as well as to the quality improvement of the loan portfolio. The major part of earnings of banks is accounted for the income from credit granting, as well as servicing of credit cards and settlement accounts.
Reduction of the kay rate. Significant efforts to stabilize the banking sector are made by the Bank of Russia headed by Elvira Nabiullina, who was recognized as the best leader among the heads of the central banks in the world in 2015 by the magazine Euromoney. One of the important instruments of influence on the industry has become the regulation of the key rate, which was increased sharply from 10,5% up to 17,0% in December 2014. With the stabilization of the economic situation the rate began gradually to reduce. In 2016, the Bank of Russia has lowered the key rate already twice, both times by 0,5%: the first time in June, the second time in September – up to 10,0%. And although, according to Elvira Nabiullina, the further reduction in the rate in the absence of any significant events in the market should not be expected this year, some experts say that such possibility cannot be absolutely ruled out. According to analysts, if current trends remain, the decrease in the key rate up to 8,0% can be expected by the end of 2017.
Two types of bank assets consolidation. However, fewer and fewer banks are succeeding in the maintaining of market positions and not to become next victim of the revocation of the license. One of the most common ways to save the business in current conditions is the consolidation of bank assets, which can be divided into two types: market transactions of merger and acquisition and resolution. By this there are extremely few market transactions (here it should be remembered the transaction of «Binbank» with «MDM Bank» and sale of the bank «Vozrozhdenie» to the group of «Promsvyazbank»). The most common variant of consolidation became the resolution, which is the main way of transfer of ownership on banks in recent months. For those, having problems with capital, it is a way to get money to survive. However, more and more big players are trying to use the resolution to their advantage: clear own balance by transferring of soft or low-yielding assets into a rehabilitated bank and receive high finance from the government. As a result, a significant part of profit of the banking sector is provided not by the main activity today, but by funds received from the state for remedial transactions. It means that some banks obtain immediate benefit and see it as the purpose of consolidation, and not as the possibility to stabilize the financial situation in the country.
New procedure of resolution. Today's paces of consolidation in the banking sector may remain over the next few years. By this the current procedure of resolution through the Deposit Insurance Agency (DIA) is becoming more expensive for the government. In this regard, in August the Central bank decided to change radically the procedure of resolution. If earlier banks were rehabilitated through DIA, which sought a turnaround manager (or engaged itself in rehabilitation of banks) and provided loans from own fund, the Central Bank will take all into its own hands now. The Bank of Russia will establish a subsidiary - Banking Sector Consolidation Fund, which will acquire a share in the capital of troubled banks and improve its indicators, and only after the rehabilitation such banks will be put up for sale. There will be no more credits for rehabilitation: the fund will provide money on the non-returnable basis. Under the new scheme DIA will be suspended from resolution, which became for it a too heavy burden. The Central Bank considered that the entry into the capital during the resolution will allow to spend on the rehabilitation of bank by 1,6 times less funds than on the rehabilitation through loans of DIA.
Strengthening of the industry by maintaining of competition. According to experts, today there are about 400 banks, which do not contribute to the qualitative growth of the industry and, essentially, have no prospects of survival. Further consolidation of the banking sector is inevitable, and that is why it is important to develop an effective mechanism of resolution, by which those assets will be stored that can be favorable for the economy of the country, and not become an additional burden. At a recent press conference Elvira Nabiullina said that the Central Bank is interested in creating of the procedure of resolution, which is clear, transparent and understandable for market participants. The industry needs precisely this instrument, as well for its strengthening, as for maintaining of competition among its participants.
Since October 1, 2016 legal entities are obliged to enter additional information about their activities to the Unified Federal Register of legally significant data about the facts of the activities of legal entities, individual entrepreneurs and other subjects of economic activities (Register). The duty to publish data is obligated by the Federal Law of July 3, 2016 №360-FL «On amendments to legislative acts of the Russian Federation».
Among such data is the following information:
- membership in the self-regulated organization;
- leasing and factoring agreements;
- independent guarantee issuing;
- execution upon property used in the production cycle;
- signs of insufficiency of assets for a company or an entrepreneur, according to the bankruptcy legislation;
- results of compulsory audit;
- financial and accounting statements
In this regard, it worth mentioning that , according to the paragraph 7 article 7.1 of the Federal Law of 08.08.2001 №129-FL (edit. of 03.07.2016) «On state registration of legal entities and individual entrepreneurs» (with amendments and additions came into force 01.09.2016), some information is obliged for compulsory publication in the above-mentioned register:
1) data placed by the registered body not later than 5 work days after placement of these data in the Unified State Register of Legal Entities (EGRUL):
- incorporation (which includes reorganization);
- a legal entity being in the process of reorganization or liquidation;
- upcoming and accomplished dismissal of a legal entity from the EGRUL and its liquidation;
- termination of the unitary enterprise, that property is sold by way of privatization or is invested in the authorized capital of the open join-stock company;
- decrease or increase of the authorized capital;
- appointment or termination of powers of the chief executive officer of a legal entity;
- change of address or location of a legal entity;
2) data placed by the legal entities and individual entrepreneurs during 3 work days beginning the date of the fact:
- net worth of joint-stock company or limited liabilities company on the closing date, in cases provided by the Federal Law of February 8, 1998 №14-FL «On Limited Liabilities Companies»;
- issue, suspension, revival of the license for the certain activities type, its reissuance, annulment or termination on other grounds;
- decision on the initiation of supervision made by the arbitration court;
- charge of movable property of a legal entity;
It is defined by the same Federal Law of 08.08.2001 №129-FL that the Unified Federal Register of legally significant data about the facts of the activities of legal entities is the federal information source formed by entering of the data provided by the legislation. The data contained in the Register are open and generally available (excluding the confidential data according to the legislation) and liable for online publishing.
Formation and maintenance of the Register made by an operator and regulated by the Order of the Ministry of economic development and trade of Russia of 05.04.2013 №178 «On adoption of formation and maintenance rules of the Unified Federal Register of legally significant data about the facts of the activities of legal entities and the Unified Federal Register of bankruptcy data and the List of data liable for including on the Unified Federal Register of bankruptcy data».
Procedure for holding a competitive tender for the Register operator is settled by the federal executive authority authorized by the Government of the RF and obliged to provide the possibility to participate for all subjects corresponding to the criteria regulated by that authority (in the edition of the Federal Laws of 29.12.2014 №457-FL, of 30.03.2015 №67-FL).
For the veracity and accuracy of data entering to the Register is responsible the body (entities) provided that data. Data publishing is on a paid basis.