bankization of russia and economic growth garegin tosunyan liechtenstein july 2, 2007

BANKIZATION BANKIZATION OF RUSSIA AND OF RUSSIA AND

ECONOMIC GROWTHECONOMIC GROWTH

Garegin Tosunyan

LiechtensteinJuly 2, 2007

2

Commonwealth of Independent States Commonwealth of Independent States on the World Mapon the World Map

1.Russia – 17075,42.Kazakhstan – 2724,93.Ukraine – 603,54.Turkmenistan – 491,2

5.Uzbekistan – 448,96.Belarus – 207,67.Kyrgyzstan – 199,98.Tajikistan – 143,1

9.Azerbaijan – 86,610.Georgia – 69,711.Moldova – 33,812.Armenia – 29,8

1.Russia – 142,82.Ukraine – 46,7

3.Uzbekistan – 26,34.Kazakhstan – 15,2

5.Belarus – 9,86.Azerbaijan – 8,47.Tajikistan – 6,9

8.Turkmenistan – 6,79.Kyrgyzstan – 5,1

10.Georgia – 4,411.Moldova – 3,912.Armenia – 3,2

Population of CIS Population of CIS countries, mln. inh.countries, mln. inh.

CIS territoryCIS territory – – 22,1 22,1 mln. sq. kmmln. sq. km..

PopulationPopulation – – 279,7 279,7 mln. inhabitantsmln. inhabitants

The territory of LiechtensteinThe territory of Liechtenstein – – 0,00,000160016 mlnmln. . sqsq..kmkm.. (160 sq.km.) (160 sq.km.)

PopulationPopulation – – 0.034 mln. inhabitants (34 thous.)0.034 mln. inhabitants (34 thous.)

Swiss territory Swiss territory – – 0,00,04141 mlnmln. . sqsq..kmkm.. (41 thous. sq.km.) (41 thous. sq.km.)

PopulationPopulation – – 7.56 mln. inhabitants7.56 mln. inhabitants

Territory of CIS countriesTerritory of CIS countries, , thous. sq. km thous. sq. km ..

3

Russian economy continues to develop Russian economy continues to develop Results of the I quarter of 2007 (in % to I quarter of 2006)

Real wages + 18,4 %

Real income of the population

+ 13 %

Consumer prices+ 3,4%*

Investments in the fixed capital

+ 20,1 %4,5 trln roubles

Industrial production + 8,4 %

export + 5,3 %USD 71 bln (the share of fuel and energy

products makes 78%)Import + 36,8% USD 42,4 blnSource: Ministry of Economy

* Compared to December 2006.

GDP+ 7,9 %

4

««Hot ButtonsHot Buttons»» of the Banking System of Russia of the Banking System of Russia

FALLING BEHINDFALLING BEHINDterms of creditsterms of credits::

credits for enterprises > 3 yearsin Russiain Russia – 28% – 28%

in EUin EU – 52% – 52%

supportabilitysupportability::number of banking offices per 100 thous. inhabitants

RussiaRussia << AustriaAustria 4-fold4-fold<< France 3-foldFrance 3-fold

assets capitalbanks’ assets

Russia < U.K. 22-fold< France 15-fold

< Germany 17-fold

banks’ assets to GDP Russia < U.K. 10-fold

< France 7-fold< Germany 6-fold

banks’ capitalRussia < EU 29-fold

< USA 14-fold< Germany 8-fold

banks’ capital to GDPRussia < U.K. 4-fold

< France 3-fold< Germany 3-fold

5

CIS and Swiss Banks’ AssetsCIS and Swiss Banks’ Assets

3,2 1,1 10,7 2,2 58,7 0,62 1,1 0,5 58,9

414

2191Assets, bln. euro

21% 20% 39% 37%95%

28% 44% 27%76% 54%

770%Assets/GDP, %

6

CIS and Swiss Banks’ CapitalCIS and Swiss Banks’ Capital

3%5%

7% 7%10%

5%7%

4%

9%6%

26%

Azerbaijan

ArmeniaBelarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajidistan

UkraineRussia

Switzerland

Capital/GDP, %

0,5 0,2 1,9 0,4 6,3 0,1 0,2 2,07,1

50,0

73,3

AzerbaijanArmenia

BelarusGeorgia

Kazakhstan

Kyrgyzstan

Moldova

Tajidistan

UkraineRussia

Switzerland

Capital of banks, bln. euro

7

Financing EconomyFinancing Economy

20%

56%

19%

46%

20%

51%

17%

31%

19%25%

Kazakhstan Ukraine Bulgaria Turkey Russia

Banking credits to the economy (% to GDP)

2002 2006

Share of long-term credits (> 1 yr) to the economy in the total

volume of credits:•In Kazakhstan – 53%

•In Ukraine – 67%•In Belarus – 70%•In Russia – 46%•In Austria – 70%

(of which > 5 yrs – 57%)

18%

54%28%

52% 30%

18%

Credits to enterprises by maturityCredits to enterprises by maturity

RUSSIARUSSIA

EU

8

Monetization of EconomiesMonetization of Economies

Monetization of national economies, М2/GDP, %

51%39%

49%35%

76%96%

134%

1%0,2% 3,2% 8,4% 9,0% 9,0% 1,5%

М2/GDP

inflation

Growing money supply does not hinder disinflation under sound monetary policy

9

Assets and Liabilities of the Central Bank Assets and Liabilities of the Central Bank of Russiaof Russia

CBR Assets, bln. euro

714

0,2

269

funds placed with nonresidents and securitiesissued by nonresidentscredits and deposits

Russian government securities

other assets

CBR Liabilities, bln. euro

53

114

3588

cash in circulationRussian government fundsfunds of credit institutionsother liabilities

4,87%

2,58%

4,13%

0,33%

USD Euro UK pounds yena

Return on the CBR Currency Reserves Assets in 2006, % per year Annual interest rate on

foreign loans for Russian borrowers

makesmakes 6 6 --10%10%

EFFECTIVENESS OF INVESTMENTS

10

Sky-rocket of the Private Sector’s External DebtSky-rocket of the Private Sector’s External DebtForeign Investments by Russian

Banks, $ bln.

19,5 21,5 2639,2

65,2

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007

USD

bln

.

Foreign Investments into Russian Banks, $ bln.

1627,7

37,360

122,9

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007

USD

bln

.External Debt of the Russian Federation

in 2006, $ bln.132,8

97,271,1

45,1

7,7 9 11,3 14,2 24,9 32,350,1

33,855,1

75,7

125

159,5116,7 103 96,8 98,2 101,2

23,921,5 22,4

0

50

100

150

200

2000 2001 2002 2003 2004 2005 2006 2007

USD

bln

.

state authorities

banks (excluding capitalparticipation)other sectors (excludingcapital participation)

RF external debt as of 01.01.2007 – $$309,7 309,7 bln.bln.

11

RequiredRequired Reserves Throughout the WorldReserves Throughout the World

Reserve Requirements in USA

6,6 7 8,57,8

45,845,4 47,6 48,3

010203040506070

2004 2005 2006 2007

$ m

ln.

10%

3%

0%

и выше

Reserve Requirements in EU

2,29

3,81

2,7

2

00,5

11,5

22,5

33,5

4

2004 2005 2006 2007

%

<100 thous. euro - 0%deposits and

sequrities > 2 years and REPO - 0%interest on reserves - 3,82%

NO RR in:•Canada•Great Britain•New Zealand•Sweden•Australia•…

12

Required Reserves Ratios in RussiaRequired Reserves Ratios in Russia

0,4%0,7%

1,5%1,7%

США ЕС РФ

RR to Assets, %

before 01.07.07 after 01.07.07

To expand the financing To expand the financing of the Russian economy it is of the Russian economy it is

necessary to:necessary to:•low down RR ratioslow down RR ratios•exclude time deposits from RR exclude time deposits from RR calculationcalculation

Required reserve ratio on credit institutions’

liabilities to non-resident banks in rubles and

foreign currency

Required reserve ratio on liabilities to individuals in

rubles

Required reserve ratio on credit institutions’ other liabilities in rubles and

foreign currency

8.07.04-31.07.04 - 3,5 3,5

01.08.04-30.09.06 2 3,5 3,5

01.10.06-30.06.07 3,5 3,5 3,5

01.07.07- 4,5 4,0 4,5

13

Refinancing Rate as an Instrument of the Refinancing Rate as an Instrument of the Monetary PolicyMonetary Policy

Federal Funds Rate in USA, %

2,25

3,25

4,25

5,25 5,25

1,251

2

3

4

5

6

july.04 jan.05 july.05 jan.06 july.06 jan.07

%

Refinancing Rate of the CBR, %

13 13 1312

11,511

10,5109

10

11

12

13

14

jul.04 jan.05 jul.05 jan.06 jul.06 jan.07 feb.07 jun.07

%

14

Bankization of RussiaBankization of RussiaBANKIZATION

means:•Increasing capitalization•Reduction of interest rates•Protection of creditors’ rights•Availability of services•Resource base enlargement•Regional infrastructure development •Governance quality improvement

COMPETITIVENESS means:

•“Saturation” with credit resources•High capitalization•Availability of Russian financial resources•Low interest rates •Geographical accessibility •Significant middle class•Low inflation

15

Targets for Competitiveness GrowthTargets for Competitiveness Growth

As of 01.01.2007 Targets for 01.01.2009 according to the Program of Bankization

credits for non-financial sector/GDP

21,6% 50%

credits interest rates 11-22% 3-6%

monetization level (M2/GDP) 35% 50%

refinancing by CBR 0,08% of the CBR assets

15-20% of the CBR assets

assets/GDP 53% 86%

capital/GDP 6,4% 13%

16

Ассоциация российских банков

BANKIZATION OF RUSSIA

=TO CREDIT,

NOT TO DISTRIBUTEwww.arb.ru arb@arb.ru +7 495 2916630495 2916630