In our publication as of August 21, 2015 «New In Doing Business: Law And Realities» we mentioned the law on capital amnesty. Today we are going to dwell upon this legal act.
The Federal law of the Russian Federation as of June 8th, 2015 № 140-FZ «On voluntary declaration of assets and bank accounts (deposits) by natural persons and on introducing amendments to certain legislative acts of the Russian Federation» passed by the State Duma as of May 22nd, 2015 offered Russian citizens to declare from July 1st to December 31st, 2015 the foreign property, bank accounts, securities and stocks in the capital of foreign companies, on which the citizens gain income. In this respect the citizens are given guarantees to provide exemption from tax and criminal liabilities, if the deals related to foreign income were concluded before January 1st, 2015 within the property stated in the declaration. Declaration and guarantee procedures are documented by the law.
However, according to experts, law execution practice shows that the declaration procedures appeared to be very complicated and the guarantees – insufficient. Due to this only about 200 corresponding declarations were filed for the first half of the year of the law operation. At the same time several dozens of the cases of holding Russian citizens’ abroad accounts on the ground of check of their origin became known. Probably it was made in order to prevent financial assets from returning to Russia.
It was the proposal of the Association of Regional Banks to prolong the capital amnesty and the President of the Russian Federation proposed to extend the period for another 6 months in the Address to the Federal Assembly in December 2015. As a result as of December 22nd the State Duma passed the law at once in three readings № 401-FZ «On introducing amendments to article 5 of the Federal law «On voluntary declaration of assets and bank accounts (deposits) by natural persons and on introducing amendments to certain legislative acts of the Russian Federation» extending the declaration term to July 1st, 2016. The law was endorsed by the President of the Russian Federation as of December 29th and published in «Rossiskaya gazeta» as of December 31st, 2015.
At year-end 2015 the head of the Savings Bank has assessed the economic situation in Russia as a large-scale banking crisis. According to experts, the signs of crisis of the banking system are:
- lack of liquidity or bank capital;
- massive recall of banking licenses, customers’ distrust in banks and banks themselves to each other;
- reduction in lending and increase in the share of «bad debts»;
- reduction of banks' profit.
At the present time banks do not known what lack of liquidity is because of efforts of the CB of the RF. The significant inflow of liquidity in the banking sector was due to the receipt of funds via budget channel, conducting of operations on investment of money of the National Welfare Fund, deposition of funds of local budgets and non-budgetary funds in credit institutions.
Since January 2015 there is a tendency of debt reduction of banks. At the end of November 2015 the debt of credit institutions on refinancing operations of the Bank of Russia decreased up to 3,3 trillion rubles, on deposit operations of the Federal Treasury – up to 1,0 trillion rubles, on loans secured by non-marketable assets or guarantees of credit institutions – up to 2,1 trillion rubles.
As of December 1, 2015 there were 688 active credit institutions (banks) with the right to conduct banking operations. For the period from the 1st of January 2015 95 banks had been liquidated. A significant number of revoked licenses should arouse mistrust in the banking system and thus demonstrate one of the signs of crisis. However, in most cases the winding-up of banks is not due to financial reasons, but initiated by the regulator as a punishment for illegal actions - you mustn’t put up with the fact that banks violate the requirements of the CB of the RF, «anti-money laundering» legislation, carry out shady transactions, lose capital or its amount is not large enough, do not fulfill obligations to creditors and depositors. Just the failure to take strong measures to careless banks can arouse mistrust in the banking sector as a whole, that’s the Mega-regulator will continue the practice of the revocation of licenses.
Reduction of deposits, in lending and, consequently, of banks' profit are the least connected with mistrust on the part of individuals and legal entities. Complex processes in the economy have led to a decrease in revenue and an erosion of purchasing power. A consumer has simply no available cash that he would like to bring to a bank. Existing bank rates on deposits do not cover inflation risks, that also makes it unprofitable to keep money on deposits.
Credit rates are clearly «over-the-top» today. For example, one of the largest banks offers 9 variants of loans for business, where the most minimum rate is 14,55%. If the amount of credit is 3 mln rubles, for the term - 3 years, then the amount of monthly payment should be 103 336,1 rubles by this rate, and the overpayment – 720 099,68 rubles. Is the business ready for such overpayment, to take 3 mln – to pay back almost 4 mln? Probably, not.
Or another example. The minimum rate on consumer credit among the top-50 banks is 14,90%. If the amount of credit is 1 mln rubles and its term - 3 years, then the amount of monthly payment should be 34 616,38 rubles by this rate, and the overpayment – 246 189,61 rubles. According to Rosstat, the average per capita incomes of people in the Russian Federation amounted to 30 514 rubles per month at the end of the 3rd quarter of 2015. With such credit conditions the amount of lending will certainly reduce, as a consequence - banks' profits drop.
The existing situation is hardly to be regarded as a crisis in the banking sector, it is more similar to the current problems caused by difficult economic trends. Among those in the banking industry are noticed by experts the following:
- loan delinquency has increased both on legal and natural persons, that has allowed to talk about the deterioration of quality of credit portfolios;
- delay in payments to contractors among companies has become the norm;
- financial assistance from the DIA for the capitalization of banks applies only to large banks;
- not all banks record distressed assets on the books;
- necessity to create provisions for losses on non-performing loans and decrease in bank margin due to an increase of interest rates on borrowed funds continue to affect the profit, reducing it.
Problems can be overcome, and it largely depends on the measures taken, which will allow to manage liquidity, help small- and medium-sized banks, to deal with careless financial institutions, expand the segmentation of financial markets, to teach clients to work in new conditions.