Russian Banking Sector Strategy

1
Russian Banking Sector Strategy

• Bottlenecks and How to Break Them
• Richard Hainsworth
• RusRating

2
Overview

• Classifying the Parts of the Strategy
• What has already been achieved (in a year)
• What Russian Banks Need
• How the Strategy Should be Interpreted
• Will the Strategy Ever Be Signed?
• Why Strategy is Important
• Where Strategy is Wrong

3
Classifying the Strategy

• Current State / Desired State
• Regulatory / Legal Changes
• Relationship of Government to Banks
• Changes in Banks

4
What Has Been Achieved(since April 2002)

• Deposit Insurance (law and ½ of implementation)
• Substance over form capital figures better
  quality
• Ownership disclosure
• Risk-based prudential ratios

5
What Banks Need

• Long-term financial Resources
• Banks running medium and long-term liquidity
  risks (borrow short/lend long)
• Short-term liquidity not the concern, hence no
  need to extend list of lombard instruments on
  short-term instruments
• Profitable environment
• Russian banks are not profitable when compared to
  East European. ROE averaging 19 in Russia,
  compared to 30 in bank-supportive countries

6
How to Interpret Strategy

• Current successes have focused on increasing
  control
• Essential given poor quality control in past
• Next focus (after deposit insurance scheme
  running) must be on profits
• End to duplicate bank audits
• Reductions in funding costs

7
Will Strategy Ever Be Signed?

• I doubt it
• Clear statements about the role of Government in
  Banking
• Very liberal and correct
• Russian Government already breaking strategic
  goals with support of VTB's empire building
• So long as Strategy unsigned, CBR can follow it,
  but Government is not chained to its constraints
  on bureaucratic actions

8
Why Strategy is Important

• It builds consensus about the general aim of
  regulatory and legal reform
• It explains why certain regulatory and legal
  reforms are necessary
• It identifies where CBR action is possible, and
  where CBR is unable to act alone.

9
Where Strategy is Wrong

• Lack of focus on development of market structure
• Basle II has three legs capital (fully covered
  in Strategy, regulation (fully covered), market
  (not given sufficient weight)
• Bank liquidator to be Deposit Insurance Agency
• Creation of inherent conflict of interests.