Banking groups and holdings

Free competition in the banking field, as well as in the industry, invariably leads to concentration. Small banks are merged by larger competitors or de facto are managed by them. This comes with the number of banks reduction, along with the banks enlargement and increase in operations volume. At the competition between banks and major unions of banking capital, the seeking for monopoly agreements is growing. High finances, for example placing the government loans, investment in large joint-stock companies and projects, are conducted under agreement of several leading banks. 

Bank holding company is a bank or corporation, having a share in the authorized capital of one or several banks sufficient for controlling them. 

Activity of bank holdings in Great Britain is a subject to the banking activity and company laws. According to the law, the Central bank of Great Britain has a right to demand all necessary information from the holding.  

The activity of bank holdings in the USA is controlled by the Bank Holding Company Act of 1956. All bank holding companies are obliged to be registered in the Federal Reserve board of governors, being responsible for their activity.  

Centralization of banking capital occurring in the merger of major banks in bank unions, as well as in assets increase and branches expansion can be shown at the example of the Russian banking system development in the early 21th century. This is proved by the statistics of the Central Bank of Russia: 

Table. Changes in the assets value of the major banks and in the number of registered credit institutions.
Registered banks, total 2124 1516 1178 1049 1031
Assets of 5 major banks (bln RUB) 1,0 3,2 14,1 41,6 42,6

Creation and operating of banking groups and holdings in Russia is a subject to the Art. 4 of the Federal law No. 395-1 (as amended on 13.07.2015) “On banks and banking activities” of 02.12.1990.  

The law identifies the banking group as a union, being not a legal entity with a parent bank having a significant direct or indirect (through a third party) impact on decisions of governing bodies of other group members. Opposite to the group, the banking holding is controlled by a non-credit legal entity without banking license. Management Company without the right on insurance, banking, manufacturing and commercial activity can also be formed for the holding control.    

According to the Law and Ordinance of the Bank of Russia No. 3780-U, dated 9 September 2015, “On the Procedure for Notifying the Bank of Russia on the Establishment of a Bank Holding Company, the Formation of a Management Company of a Bank Holding Company and its Granted Powers”, banking groups and holdings can be formed only with the obligatory notification to the Central Bank of Russia. They are obliged to annual provision of the regulator with consolidated financial accounts (including international standard) with auditor’s report. 

VTB can be an example of banking group. Parent PJSC VTB directly holds 22 subsidiary credit and financial institutions. Through subsidiaries the parent bank also controls 3 banks and 10 companies.  

Speaking about the banking holding’s activity, Financial group “Otkritie” with “Otkritie” Management Company considered. Bank Otkritie Financial Corporation, Khanty-Mansiysk Otkritie Bank, National bank “Trust”, Otkritie Capital, Otkritie broker, Otkritie Life insurance are included in the holding.  

Creation of banking groups and holdings gives an opportunity to consolidate assets and capital, use united brand, and expand the business geography. According to the analysts, all these establish conditions for improving stability of credit institutions and the banking system in general. This is up-to-date especially in the current situation, when the Russian banks are almost divided from the western sources of cheap loans due to the sanctions.     

According to the Central Bank of the RF as of 1 November 2015, there are 757 active credit institutions with 1473 branches in Russia. Subscription on the Information and analytical system Globas-i® give you an access to the banks’ activity, financial accounts and their assessments, as well as to archive information on banks with terminated licenses. 

The first step to meet Islamic banking in Russia was taken by means of Islamic leasing

Peculiarities of economic development motivated experts to look for the new banking instruments. Lately the offer to create the Islamic banking in Russia has been articulated with ever increasing frequency. The Islamic banking is understood to be a way of prosecuting the banking operations being in line with the religious rules of Islam. One of the main rules is refusal to draw interests from credit granting, deposits. Moreover, corporations that manufacture alcohol and tobacco, witchcraft related activity, speculation, gambling games are prohibited in the Islamic world. 

This brings up the question, what helps the income of the Islamic banking to grow? Financial institutions appropriate money for investment projects. The entrepreneur gains a certain profit investing this money. He/she shares one part of the profit with bank and the bank in its turn shares with the depositor. Due to this various specific forms are carried out in the Islamic world, such as:  musharaka and mudaraba (joint and trust management), murabaha (installment sale), sukuk (Islamic interest-free bonds), takaful (insurance) and others.

Thus far the isolated cases of implementing the Islamic bank took place in Russia. However in the end they all failed. According to experts, the main reasons for this are difficulties related to the Russian Legislation, lack of government support, as well as uncertainty of the Islamic banking development in the country where the majority of citizens doesn’t profess Islam.

Nevertheless, certain features of the Islamic banking in Russia might be turned into reality with the help of so-called “Islamic windows”. The point lies in the collaboration with the branch of the ordinary bank which carries out its activity in accordance with the Sharia. Thus, for instance, in 2011 the «AK Bars» Bank has successfully arranged the investment of funds of the syndicated financing*, employed within a framework of the Islamic transaction Murabaha in the amount of 60 mln USD. This transaction was recognized the best in 2011.

*Syndicated financing — is a finance product in which the credit is supplied to the borrower by no less than two lenders (lending syndicate), taking part in this transaction with a certain shares as a rule under integrated credit agreement. Structure flexibility allows using this type of financing practically for any project and borrower’s needs.
In 2012 the Islamic window was opened in the «Ellips bank» located in Nizhny Novgorod (according to Information and Analytical System Globas-i, the bank ceased operations by accession to AKB «Rossiisky kapital» in the end of 2014). Earlier the investment department of VTB «VTB Kapital» had been preparing the issue of the Islamic bonds sukuk. In 2014 it was decided to open the department of Islamic financing in «MBA-Moskva» bank. However in the whole the services of the Islamic bank in Russia never gained mass distribution. 
In the current environment of the economic crisis, under the dropping ruble’s rate to the US dollar, many domestic institutions feel the lack of liquidity. This situation provoked the necessity of searching for and implementing the new lines of cooperation among which the Islamic economy is. At the moment the issue of implementation of the Islamic banking in Russia is at the stage of discussion. The adoption of enactment concerning the issue is being postponed.
At the same time the deputy corps gives consideration to the certain financing instruments subject to the Sharia, in particular the Islamic leasing. In November 2015 a bill determining the rules of settlement of the leasing transactions in accordance with the standards of the Islamic financing was introduced to the State Duma. Thus the provisions of the bill rule out conclusion of two transactions at the same time in regard to one property (rent or purchase/sale). In this respect it is suggested to carry out the change of ownership by means of both lease agreement and particular purchase/sale agreement. The latter conforms to the Sharia law.
The experts observe that the standards of the Islamic financing will work towards crossing the barriers in business relationships with the Muslim countries. The positive thing is that the Central Bank of Russia supported the performance of experiment on implementation of the Islamic banking in several regions.