The total capitalization of the banking system of Russia is an actual phenomenon of our days.
The rate of capitalization growth in the period from 2014 to 2017 reached serious proportions.
The pace at which Russian banks were building up capital determines the growth of dynamics of their assets, which indicated the accelerated capitalization of the banking system.
The low level of capitalization of the banking system both in absolute value and in relation to losses in the course of the development of crisis phenomenon had a significant impact on the worsening of the crisis.
The development of the banking system of the region is accompanied by further expansion of the branch network of Moscow banks, which indicates the orientation of Russian commercial banks to regional markets, as the predominant concentration of the banking sector is concentrated in the Moscow region. The investment attractiveness of the banking services market is very slowly rising, which in general does not contribute to the further capitalization of the banking system [11].
The low level of capitalization of the banking system is determined by the state of our economy. Paraphrasing the famous expression, we can say that every economy deserves a banking system that it has. After all, the banking system ultimately mediates the movement of the gross domestic product of the country, redistributes the accumulation created in the sphere of material production, and therefore its size is determined, first of all, by the scale of the economy itself.
In order to increase the level of capitalization of the banking system, not always adequate measures are applied. In the past 10 years, there have been periodic reports of an upcoming increase in the capital minimum for existing banks or whether this step is advisable. Such reports were contained in draft normative documents, statements on this topic were made on behalf of the Bank of Russia, its leaders and even representatives of the banking community.
The ambiguous impact on the capitalization of the banking system may be due to the mandatory transition of all banks to IFRS. On the one hand, increasing the transparency of banks will make them more attractive to potential investors. On the other hand, new accounting rules can lead to a decrease in the capital of more or less banks. Although some experts believe that this will not happen.
Capitalization of the banking system.
Strengthening the capital base of Russian banks can not be an end in itself and a political campaign. World experience shows that an effective solution to the problem of capitalization of the banking system can not be provided by administrative methods. In the conditions of a local or systemic banking crisis, a number of countries resorted to injecting the central bank’s budget funds or resources into the capital of individual credit institutions. (In Russia it was used by the Central Bank).
With the onset of the financial crisis, the opinion emerged that the cause of the bankruptcy of many Russian banks was the enthusiasm for speculative transactions with currency and government treasury obligations. But it’s not only that. Analysts of the Central Bank of the Russian Federation (Bank of Russia) note the insufficient capitalization of the banking system, as well as the low level of technology, skills and management of commercial banks.
Indeed, in the context of general economic instability, budget deficits, inflation, and the crisis of the banking system, the problem of analyzing the quality of the bank’s activities becomes particularly topical.
Determining its real state is of great importance not only for the bank itself, but also for numerous shareholders and investors. They must be confident in the financial well-being of a particular bank, the development of which brings them real benefits. Financial instability can lead to insolvency and, as a consequence, bankruptcy.
Therefore, the need to study the financial sphere in modern conditions, especially the activities of commercial banks, is beyond any doubts [5].
Fourthly, despite the fact that the positive trend in the capitalization of the banking system remains, there is a lag in the growth rates of the capital base from the growth rates of banks’ assets and liabilities.
Low capitalization of the banking system (mainly for reasons beyond the control of the banks themselves).
In October 2001, after almost two grim years for stocks, the total capitalization of the world market decreased to 25.1 trillion dollars. The collapse of the share market by 30% still corresponds to an absolute loss of about 7.5 trillion dollars. Thus, market crashes can «swallow» years of savings and pensions at one point.
Can they make us suffer even more, being the precursors or switching factor of the main recession, as in 1929-33 after the great collapse of October 1929 Or they can lead to a general collapse of the financial and banking system, which, it seems, the world has avoided several times in so distant past [12].
The problem of low capitalization of the Russian banking system.
In general, it can be noted that the Russian banking system needs to be enlarged by existing credit institutions, since a higher level of capitalization will allow them to provide services in volumes adequate to the needs of economic entities, compete with foreign banks and other financial institutions. One of the directions of solving this problem may be.
Most large commercial banks were joint-stock companies, but none of them, with the exception of Sberbank of Russia, did not have liquid shares and sufficient level of market capitalization. From the point of view of the main groups of owners, the Russian banking system was extremely heterogeneous.
At the same time, virtually every Russian bank, especially the leader banks, was completely controlled by a group of related individuals / organizations or the state. By types of owners and the nature of operations conducted, the operating banks were divided into several main groups.
Participation in international banking conferences.
Employees of the Bank of Russia also participated in the XII Yalta Interbank Conference on the theme «Capitalization of banks’ ways and opportunities» and «Foreign capital in the banking systems of the countries of Central and Eastern Europe engine or brake» in Yalta (Ukraine, April).
Disproportion in the development of the RWF and the banking system. In 2005, the discrepancy between the efficiency and the level of development of the national banking system became apparent to the scale of the development of the Russian economy and the level of demand of the largest companies in borrowed resources.
The growth of companies’ capitalization reflects the growth of their needs in investments and borrowed funds. However, Russian banks were unable to meet the growing investment needs of Russian companies.
In the ratio of directions of economic growth, anti-inflationary regulation and institutional reforms in our country, the fight against inflation is usually the first place, silently implying that success in this area will automatically lead to the direction of free cash in production investments.
But with the current state of the institutional system, it is difficult to count on such an effect of money, rather, they will go abroad than will be invested in production.
This is a natural consequence of the fact that the process of property transformation is far from complete, potential investors expect reliable consolidation of enterprises for new owners, and the latter are often themselves not interested in receiving funds from outside, for fear of losing control over enterprises.
In addition, the inflation of productive investment is hampered by the underdevelopment of the banking system and the stock market (especially this undermines the opportunities for capitalizing the savings of the population), the loss of most enterprises, political and other risks [9].
For many years, domestic and foreign experts have noted the extremely low level of capitalization of the Russian banking system. Insufficient capitalization makes the banking sector extremely dependent on short-term fluctuations in the macroeconomic conditions of its functioning, subject to the risk of liquidity loss, credit and market risks.
As a result, Russian commercial banks have limited opportunities to lend to the non-financial sector of the economy and the population, to provide a sufficient level of trust of customers and investors.
The situation is aggravated by the fact that the transition to international financial reporting standards (IFRS), which has been planned since 2004, will lead to a reassessment of the assets of commercial banks, which may result in a more or less significant decrease in the capital base for many of them.
This is explained by the fact that due to the complex intertwining of a number of economic and political factors in Russia since the beginning of the 1990s, liberal requirements for the minimum size of the capital of credit institutions have been established. One of the consequences of this was the emergence of many small banks with a very low level of capital base.
After the decision of the Bank of Russia in 1993 to gradually increase these requirements, the situation gradually began to change for the better. However, the currency and debt crisis in August 1998 sharply worsened the state of the Russian banking sector.
The total capital of the banking system only for the period August-September 1998 declined by more than 37%. By March 1999, the aggregate capital (without Sberbank) decreased by almost 60%. Before the financial crisis of 1998, the aggregate capital of Russian banks was less than that of any of the world’s 20 largest banks.
Taking into account the hidden losses of Russian banks and the unreliability of reporting, we can state that the capitalization of the banking sector was even lower.
The paper analyzes the macroeconomic situation in Russia based on the results of 2001 and the first months of 2002. We consider measures of fiscal and monetary policy aimed at consolidating positive trends in the development of the non-financial and financial sectors.
The main attention is paid to the consideration of key problems of the development of the domestic banking system. These include, first of all, the capitalization of the banking sector and banking risks in conducting active operations. Through the prism of investment attractiveness of the regions, regional aspects of the activity of Russian banks are analyzed [6].
The leadership of the Bank of Russia in 1999 expressed the opinion that ensuring the stability of the banking system should become a priority task of the country’s economic policy. This was a good opinion, except for what was specifically meant just raising the level of banks’ capitalization.
The banking sector needs substantive assistance from the state. It could be expressed in at least the following two points. First, given the state of the banking sector today (and largely because of the fault of the state itself), without active interest and participation of the state, it can not catch up (especially in terms of capitalization), not to mention the fact that take a prominent position in the global financial and credit sphere.
And without a developed national banking system, as already noted, all attempts to create market economy mechanisms will be vain.
Secondly, the state must ensure proper working conditions for credit institutions, primarily legal ones, without allocating the banking sector from the general mass of economic entities, but also not forgetting the specifics of banking activity and its special role in the economy.
Solve the problem can only search for civilized and market-adequate mechanisms of capitalization of mutual debts of enterprises and their debt on bank loans. It is in this direction that the financial system is being reformed in the countries of Eastern Europe. This is also aimed at the bills of exchange introduced in Russia. The next step, apparently, should be the right to exchange the debts of enterprises for their shares in the process of privatization [7].
Currently, the Russian financial system largely satisfies the needs of the economy in short-term resources, but is not yet able to provide sufficient long-term resources. This problem can be solved only by developing the banking sector, increasing its capitalization, developing the debt securities market.
It is necessary to create favorable conditions for the mortgage services market, leasing, investment banks and organized markets for goods and financial instruments derived from them.
It should be noted that even among the banks with the highest capitalization, that is, over $ 10 billion in capital, only 58.5% offered an expanded set of online services. This allows us to conclude that online banking systems, even in the largest banks, have not yet become universal.
Thus, the Banking Sector Development Strategy of the Russian Federation suggests a more relaxed and evolutionary benchmark for the capitalization of the banking system, as compared to the proposal of the RSPP. However, it is also quite tough.
Strong growth in the capitalization of banks due to the receipt of a significant mass of profit (especially at the expense of interest on loans), despite a decline in its rate and interest rate.The slower than in the first scenario, the growth of banks’ incomes and capital, although the rate of profit may be higher. Last but not least, this may be due to an increase in the contribution to the banking losses of banks and the loss of part of the capital due to the bankruptcy of a number of large banks.
Decapitalization of the banking system.
Concerning the sufficiency of capital. Today, the possibility of a sharp increase in the capital adequacy ratio is considered — four times (from 2 to 8%). It must be borne in mind that the process of raising the capital adequacy standards will go in any case, and it is necessary to prepare for it, i.e. to increase the capitalization of its credit institution accordingly.
This trend is objective, but I hope that it will be implemented progressively, we should start with at least 6%. In the State Duma of the Russian Federation there was a compromise amendment, my and D.A. Medvedev, but she did not pass. We offered 6%, and this, I believe, was quite acceptable for the banking system.
When the Basel principles were adopted in the late 1970s, it sharply stimulated the securitization of assets in Europe, and I hope that our attempts to tighten up on capital and its adequacy will stimulate work on bills related to securitization of assets.
The concept of the draft law under consideration has been prepared, the Central Bank of the Russian Federation, the federal service, deputies of the State Duma of the Russian Federation worked on it. This will release bank balances, they will transfer their assets to a certain legal entity, and they will immediately change the indicators of capital adequacy ratios.
All this will eventually allow commercial banks to refinance, as a specialized legal entity for this asset (this is world practice) issues securities, attracts funds from the capital market from investors, and service goes to the same commercial bank that transferred this asset to a specialized legal entity. Accordingly, the bank has additional resources for lending to the economy. However, this issue is very complicated, it touches upon the basis of our civil legislation, the articles of the Civil Code of the Russian Federation [3].
These trends will cause fundamental changes in the current model of investment. Maintaining investment activity at least at the current level will require, by the end of this decade, a transition from an investment model based on the use of the company’s own funds11 to an investment model based on attracted capital.
This means that the economy goes from cheap investments to expensive investments, the price of which will be largely determined by interest rates. Sharply increase the requirements for the capitalization of companies, the development of the banking system and the stock market.
The share of companies’ capitalization in GDP in 2005 increased to 61.5% compared to 39.5% in the previous year. In the same year, Russia became one of the world leaders in attracting FDI, which, according to UNK-TAD, amounted to 26.1 billion dollars, doubling compared to 2004. Against this background, the share of domestic credit in GDP for the year decreased from 25 , 9 to 18.4% of GDP70.
The gap between the indicators of capitalization and domestic credit indicates a serious disparity between the level of development of the banking system and the growth of Russian companies [13].
Since the liberalization of the state-owned mono-bank system in 1989, the number of banks in Russia has increased many times, at the moment there are about 1300 of them. However, a large number of banks do not ensure high competition in the industry.
The Russian banking sector, despite the large number of participants, is considered highly monopolized. This is largely due to the dominant role of state-owned banks, which hold leading positions in a number of markets. However, the Russian banking market is highly segmented.
This is due to such features of the functioning of the industry as a significant gap between banks in terms of capitalization, between sectors of the economy — in terms of profitability and between local markets — on the saturation of banking services. As a result, competitive interaction between banks can be characterized as interaction in the field of mergers and acquisitions, as it happens now.