russian financial sector i · 2019-10-04 · newsletter –11 key indicators –14 macrofinance...
TRANSCRIPT
CONTENTS
Колонтитул раздела или подраздела 2B
ank
of
Ru
ssia
: O
verv
iew
Evolution – 4
Reforms – 7
Compliance with international standards – 8
International cooperation – 9
Financial market development strategy – 10
Newsletter – 11
Ru
ssia
n M
acro
Up
dat
e Key indicators – 14
Macrofinance – 15
Inflation – 16
Inflation expectations – 17
Economic forecasts – 18
Monetary policy – 20
Ru
ssia
n F
inan
cial
Se
cto
r Banking sector – 22
Financial stability - 35
Securities market – 36
Corporate governance – 45
Countering malpractice – 46
Investment funds – 47
Non-state pension funds – 48
Insurance – 49
Commodities – 50
Microfinance – 51
Fintech – 52
Marketplace - 54
Payment infrastructure – 55
Consumer protection – 58
Financial inclusion – 59
AML/CFT – 60
Cybersecurity – 61
Evolution (1)
BANK OF RUSSIA: OVERVIEW 4
1990
Central Bank of Russia (CBR): founded in 1990
Federal Financial Markets Service (FFMS): founded in 1993
1992 – MICEX established– Law on insurance business
1995 – RTS exchange established
1996 – Law on securities market
1996 – Law on joint-stock companies
1999 – Law on protection of rights ofsecurities market investors
1995 2000 2005 2010 2015 2020
2013 CBR becomes the megaregulator of
the Russian financial sector
2002 – First edition of the Russian corporate conduct code
2003 – Law on mortgage-backed securities
2011 – Law on insider trading– MICEX and RTS merge into the Moscow Exchange– FISS joins FFMS and the latter becomes insurance market
regulator
2012 – National Settlement Depository obtains status of the CentralSecurities Depository (CSD) of Russia
2013 – National Clearing Center obtains status of the first qualified Central Counterparty (CCP) in Russia
2013 – CBR becomes an IAIS member as well as IOSCO member
2014 – Inflation targeting regime with 4% medium-term target rate– Introduction of a floating exchange rate regime– Approval of a new corporate governance code– National Card Payment System Joint-Stock Company
(AO NSPK) established
2015 – Signing of the IOSCO Multilateral Memorandum ofUnderstanding
– National payment system “Mir” established and “Mir”card issue started
2016 – Banking regulation in Russia assessed as compliant with Basel II, Basel 2.5 and Basel III (RCAP)
2017 – Introduction of proportional regulation in banking sector– Introduction of new financial rehabilitation mechanism
2018 – Bank of Russia joins MMoU IAIS
1990 – Law on banks and banking activities– Law on Central bank of RSFSR
1992 – Russia becomes an IMF member
1995 – Law on Central bank of RSFSR: amendments
1996 – CBR becomes a BIS member
2001 – Law on AML/CFT
2002 – Law on the Central Bank of the Russian Federation
2003 – Russia becomes a FATF member – Start of the IFRS reporting project– Law on deposit insurance
2005 – Introduction of corridor for USD&EUR basket within the exchange rate policy framework
2009 – CBR becomes a BCBS member– CBR becomes a CPMI member
2010 – Introduction of floating exchange ratecorridor
2011 – Law on National Payment System
Focus on Russian financial market development
EVOLUTION (2)Monetary policy framework development
BANK OF RUSSIA: OVERVIEW 5
Exchange rate regime development
Monetary policy framework development
2006
Inflation targeting announced
Inflation targeting is represented as a midterm goal in the “Monetary Policy Guidelines”
2008
Active inflation targeting communications
2009
Liquidity management
Instruments are developed, the interest rate corridor is narrowed
1998 - 2008
Narrow band
2012
Transition deadline set
“Floating rate and inflation targeting by 2015”
2014
Floating exchange rate introduced
2008 - 2014
Flexible band
2013
Key rate introduced
2015
Transition to the inflation targeting regime is completed
Medium-term inflation target is around 4%
Since Nov. 2014
Free floating Ruble
Dec. 2017
Inflation below 4%
(2.5% - all-time low in July 2018)
Dec. 2018
Inflation 4.3%
Evolution (3)Bank of Russia supervises the following key segments
6
Banking sector
Microfinance
Payment infrastructure
Asset managers
Credit rating agencies
Non-state pension funds
Securities market, including securities
market professionals
Insurance sector
Market infrastructure,
including fair pricing
BANK OF RUSSIA: OVERVIEW
REFORMSPromoting price and financial stability, fair competition, newest technologies and best practices
7
Inflation targeting regime adopted with a 4% medium-term target rate pursued using conventional monetarypolicy instruments
‒ Banking sector rehabilitation in progress, new bankresolution mechanism introduced
‒ Proportional regulation introduced and anadvanced IRB approach for the largest banksgradually phased in
‒ Banking regulation compliant with the Basel II,Basel 2.5 and Basel III standards, maintainingAML/CFT supervision of credit and non-creditfinancial institutions (according to the RegulatoryConsistency Assessment Program (RCAP) 2016)
‒ New macroprudential regulation mechanism inforce – add-ons to risk ratios are introduced andset by the Bank of Russia Board of Directors
‒ Introduction of PTI ratio for macroprudentialregulation purposes starting October 1, 2019
‒ Setting up a national rating industry - only creditratings of Russian national agencies may be used forregulatory purposes
JS companies segregation into public and non-public,corporate actions reform, new corporate governance codeadopted in 2014, listing rules based on the new corporategovernance code, listing committees established
‒ Benefits from infrastructure put in place, tax andregulatory reforms (T+2, CSD and access of ICSDs, up-to-date CCP, Individual Investment Accounts)
‒ Marketplace project infrastructure is developed – launchof the platform is planned for 2019
‒ Guarantee fund mechanism introduced‒ Investment horizon for non-state pension funds
extended to 5 years‒ Individual pension capital (IPC) accounts legislation is
under development
Monetary policy
Banking regulation and supervision
Market infrastructure
Corporate governance
Pension system
‒ Russian payment system infrastructure developed andcurrently in use by all leading international paymentsystems
‒ Payment infrastructure monitoring and supervision‒ System for transfer of financial messages (SPFS) has been
developed‒ The Faster Payments System launched in January 2019
Payment infrastructure
BANK OF RUSSIA: OVERVIEW
COMPLIANCE WITH INTERNATIONAL STANDARDSRussia complies with or implements key international standards and best practices
8
Banking regulation is compliant withBasel II, 2.5 and Basel III (RCAP 2016)
Russia’s Anti-Money Laundering system iscompliant with FATF Recommendations
Bank for International Settlements, IAIS andIOSCO Principles for financial marketinfrastructures (PFMI) are beingimplementedUpon monitoring the implementation of thePFMI, the CPMI gave Russia the highest-possible ‘4’ rating
High FSAP grades in all surveyed segments,including securities market, insurance andpayment infrastructure
Russia ranks#31 in DOING BUSINESS-2019Ratings (#35 in 2018)
National Settlement Depository is eligiblefor custody arrangements under Rule 17f-7of the US Investment Company Act of 1940
Russia is a party to the Articles ofAgreement of the IMF and upholds freemovement of capital
Insurance sector has started implementingSolvency II European principles
BANK OF RUSSIA: OVERVIEW
INTERNATIONAL COOPERATIONBank of Russia cooperates with international financial institutions, regulators and associations
9
G20
BRICS
BANK OF RUSSIA: OVERVIEW
FINANCIAL MARKET DEVELOPMENT STRATEGYGuidelines for the Development of the Russian Financial Market in 2019 - 2021
10
The Bank of Russia Guidelines for the Development of the Russian Financial Market in 2019 – 2021 cover the following key areas and activities:
• Implementation of integrated road map for developing competition in various sectors of Russian economy approved by the Government
• Building biometric database
• Credit history bureau reform
• Marketplace project launch
• Faster payment system in force
• Testing of digital identification platform
• “Regulatory sandbox” project development
• Bank of Russia’s withdrawal from the capital of banks undergoing resolution after their financial rehabilitation
• Introduction of individual pension capital accounts
• Introduction of “green” bonds
• Crowdfunding
• Introduction of new rules for crediting private-public partnerships
• Development of concession projects
• Marketplace project launch
• Introduction of financial services access points map
• Development of remote identification and unified biometric system
• Development of electronic insurance services distribution channels
• Improving insurance services inclusion in Russian regions
• Involvement of financial consumer ombudsmen in disputes resolution
• Increase of personal responsibility of management
• Limited employment opportunities in financial sector for malicious (unscrupulous) people
• Development of qualified investor institute
• Increase of responsibility for substandard sale of financial products
• Unified financial transactions register
• Control for the population indebtedness and prevention excessive risk accumulation in the segment
• Risk-based approach to insurance market participants
• Widening the list of financial non-credit institutions subject to stress testing
• Improving the toolkit for macroprudential stress testing
Building reliable financial environment
Improving financial inclusion and availability of capital
Developing market competitiveness
Ensuring financial stability
BANK OF RUSSIA: OVERVIEW
NEWSLETTER (1)Key news from the Russian financial market
11
3 July 2019Starting June 2019, in the context of new standardised approach to credit risk assessment revisions have beenimplemented in assessing credit risk for sovereign borrowers based on external long-term creditworthiness ratings. Thismakes it possible to reduce the ratios for sovereign borrowers and export guarantee loans from 100% to 50%.
11 June 2019Starting from 1 October 2019, banks will be required to calculate customers’ PTI (payment-to-income) ratio. Add-ons tothe risk ratios applied to consumer loans will be then set by the Bank of Russia depending on both the PTI and the effectiveinterest rate.
31 May 2019The Bank of Russia decided to raise required reserve ratios on liabilities to individuals in foreign currency for creditinstitutions by 1 percentage point to 8.0%, effective from 1 July 2019.
5 June 2019
Daily amount of regular foreign currency purchases in the domestic market under the fiscal rule is:
RUB 8.9 bn from 6 Sep until 4 Oct 2019 RUB 16.3 bn from 7 Jun until 4 Jul 2019
RUB 11.2 bn from 7 Aug until 5 Sep 2019 RUB 16.7 bn from 14 May until 6 Jun 2019
RUB 10.0 bn from 5 Jul until 6 Aug 2019 RUB 11.6 bn from 5 Apr until 13 May 2019
28 January 2019The Faster Payments System launched and is set to enable individuals to make instant transfers to each other 24/7/365using a mobile phone number – regardless of in which banks the sender and recipient have their accounts.
25 January 2019The Bank of Russia decided to commence from 1 February 2019 deferred foreign currency purchases in the domesticmarket under the fiscal rule to compensate for the regular purchases suspended in 2018. These purchases will be carriedout gradually in the 36 months since the launch date with the daily amount of RUB 2.8 bn.
BANK OF RUSSIA: OVERVIEW
NEWSLETTER (2)Key news from the Russian financial market
12
1 January 2019
Capital conservation buffer will be raised in accordance with the schedule approved by the Bank of Russia – it willstand at 1.875% from 1 January 2019, 2.0% from 1 April 2019, 2.125% from 1 July 2019, 2.25% from 1 October 2019,and 2.5% from 1 January 2020.
The SIFI capital buffer (applied to 11 systemically important Russian banks) will remain at 0.65% throughout 2019.
The minimum LCR requirements for SIFI raised from 90% to 100% in accordance with the Basel III standards.
The deposit insurance system will cover small enterprises’ funds up RUB to 1.4 mln deposited with Russian banks thathave joined the deposit insurance system.
Systemically important banks start to calculate the ratio of maximum concentration of exposure per borrower orgroup of related borrowers and report it to the Bank of Russia. Based of the results of monitoring this indicator, theBank of Russia will make a decision on the terms and specifics for setting it as a required ratio.
28 December 2018The Bank of Russia has permitted Raiffeisenbank to use internal ratings-based (IRB) approach for the purpose ofcalculating regulatory capital (effective 1 Feb 2019).
21 December 2018The Bank of Russia raises risk weights on unsecured consumer loans extended after 1 April 2019 with the effective interest rate of 10% to 30%.
14 December 2018The Bank of Russia decided to resume regular foreign currency purchases in the domestic market under the fiscal rule that were suspended in 2018, starting 15 January 2019.
1 October 2018
The Bank of Russia completed transition to the new macroprudential regulation mechanism by introducing risk weightadd-ons for capital adequacy calculation by credit institutions while bringing standard risk weights on assets in linewith Basel III requirements (effective 8 Oct).
Risk weight add-ons for mortgage loans and loans for construction co-funding with LTV > 80% were set at 100%, i.e.200% risk-weight will be applied to such loans extended after 1 January 2019. The buffer will only be effective as longas the loan-to-value ratio exceeds 80%.
The countercyclical capital buffer for Russian credit institutions is retained at 0% of risk-weighted assets.
BANK OF RUSSIA: OVERVIEW
KEY INDICATORSClear signs of macro stabilization across the board
RUSSIAN MACRO UPDATE 14
Figure 3: Russian Ruble volatility remains low while in free-floating Figure 4: Retail sales and real wages dynamics (YoY, %)
Figure 1: Real GDP growth started to recover in 2016 (YoY, %) Figure 2: Private consumption and investment dynamics (YoY, %)
Source: Bank of Russia, Rosstat
6.8
7.9 5.2
2.0
- 9.4
- 1.9
3 2.3
9.1
5.0
1.3
- 1.8
- 11.2
0.7 5.5
2.9
-15
-10
-5
0
5
10
15
2011 2012 2013 2014 2015 2016 2017 2018 2019Е
Private consumption Investments
1.5
1.01.0
0.0
4.3 3.7
1.8
0.7
- 2.5
0.3 1.6
2.3 1.3
0.8
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2011 2012 2013 2014 2015 2016 2017 2018 2019Е
61.966.4
30
40
50
60
70
80
90
02
.15
05
.15
08
.15
11
.15
02
.16
05
.16
08
.16
11
.16
02
.17
05
.17
08
.17
11
.17
02
.18
05
.18
08
.18
11
.18
02
.19
05
.19
08
.19
RU
B p
er 1
USD
-7.4
3.5
-9.5
1.0
-15
-10
-5
0
5
10
15
04
.15
07
.15
10
.15
01
.16
04
.16
07
.16
10
.16
01
.17
04
.17
07
.17
10
.17
01
.18
04
.18
07
.18
10
.18
01
.19
04
.19
07
.19
Real wages Retail sales
MACROFINANCESolid fiscal and external positions
15
Figure 7: Significant international reserves assuring financial stability Figure 8: Sovereign debt to GDP lowest in both EM and DM spaces
Figure 5: Current account surplus amounted to USD 114 bn in 2018 Figure 6: Strong fiscal position: budget consolidation and fiscal rule
Source: Bank of Russia, Bloomberg, Ministry of Finance
114
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
5.4 4.1
-6.0
-3.9
0.4
-0.2-0.8 -0.7
-2.8-3.9
-1.3
2.7
0
20
40
60
80
100
120
-12
-8
-4
0
4
8
12
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Russian Federal Budget Balance, % of GDP, lhs Urals, $/bbl, rhs
636.4
482.4537.6
518.4
200
300
400
500
600
700
800
12
.12
06
.13
12
.13
06
.14
12
.14
06
.15
12
.15
06
.16
12
.16
06
.17
12
.17
06
.18
12
.18
06
.19
External debt, $bn Reserves, $bn
External debt/GDP 1H19 = 30% Reserves/GDP 1H19 = 32.8%Reserves cover 17 months of import
98%109%
38%51%
8% 14%
0%
20%
40%
60%
80%
100%
120%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Developed countries Emerging countries Russia
RUSSIAN MACRO UPDATE
-4%
0%
4%
8%
12%
16%
20%
24%
06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19
CPI Non-food products Food Services Key rate Medium-term inflation target
INFLATION Medium-term inflation target successfully met in 2017-2018
16
Figure 9: Inflation (YoY, %)
Source: Bank of Russia, Rosstat
Medium-term inflation target
4.3%*
* As of August 31, 2019
January 2016: Oil prices reach their lowest level in a decade
RUSSIAN MACRO UPDATE
INFLATION EXPECTATIONSHouseholds and businesses inflation expectations remain elevated
17
Source: FOM, Rosstat, Bloomberg, Interfax, Thompson Reuters, Bank of Russia
2017 2018 2019
Horizon I II III IV Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
Inflation expectations (absolute numbers), %
Households
FOM Next 12 months 11.2 10.3 9.6 8.7 8.9 8.4 8.5 7.8 8.6 9.8 9.7 9.9 10.1 9.3 9.8 10.2 10.4 10.1 9.1 9.4 9.3 9.4 9.4
FOM (observed inflation) Prev. 12 months 14.0 12.4 11.2 10.0 9.9 9.4 9.2 8.3 9.2 10.6 10.3 10.4 10.2 10.1 10.1 10.2 10.1 10.6 10.0 10.5 10.4 10.2 9.9
FOM (Bank of Russia calculations) Next 12 months 4.0 4.0 2.8 2.5 2.1 2.1 2.2 2.2 2.2 2.6 2.8 3.5 3.8 3.8 4.4 5.4 6.2 5.9 5.7 5.5 5.5 4.9 5.3
Professional analysts
Bloomberg 2019 4.0 4.0 4.2 4.4 4.7 4.5 4.6 4.5 4.7 4.6 4.7 4.5 4.5 4.5 4.3
Interfax 2019 3.6 3.7 3.8 4.1 4.0 4.1 4.3 4.4 4.3 4.2 4.4 4.7 4.8 4.7 4.6 4.5 4.5 4.3 -
Reuters 2019 3.9 3.9 4.0 4.3 4.5 4.5 4.5 4.7 5.0 4.8 4.8 4.8 4.8 4.6 4.3 -
Financial markets
OFZ IN (option not subtracted) 2023 4.9 4.6 4.2 3.9 4.0 3.9 3.8 4.1 4.2 4.5 4.6 5.2 5.3 5.1 5.1 5.1 5.1 5.0 4.9 4.6 4.2 3.9 3.7
OFZ IN (option not subtracted) 2028 4.3 4.6 4.6 5.0 5.4 5.2 5.2 5.1 4.9 4.9 4.8 4.7 4.3 3.9 3.8
Inflation expectations (balanced index*)
Households
FOM Next 12 months -4.4 -4.1 -3.6 0.5 -1.5 -0.9 -3.2 -4.8 -3.1 9.1 8.6 11.3 9.8 7.9 14.3 20.6 18.6 11.5 8.0 5.6 6.5 5.4 -
FOM Next month -12.2 -10.4 -16.5 -16.9 -24.5 -19.5 -15.9 -17.3 -12.6 0.0 -5.6 -3.7 -4.5 -5.9 -6.8 -3.5 1.9 -8.2 -9.8 -8.1 -10.7 -14.6 -
Businesses
Bank of Russia monitoring Next 3 months 7.9 8.6 7.5 7.3 6.8 6.3 7.0 8.8 10.2 10.3 10.9 11.1 12.4 12.9 13.7 16.1 18.1 12.8 11.0 10.0 9.6 10.2 9.0
PMI input prices Next month 7.8 9.0 12.2 10.6 9.2 11.4 12.2 27.4 27.2 28.4 21.6 22.8 24.2 23.4 22.6 22.0 35.0 26.8 23.6 19.8 14.2 11.8 -
PMI output prices Next month 1.0 3.4 6.8 3.0 2.8 2.8 4.0 13.6 6.4 6.6 8.2 6.6 5.8 7.6 7.6 5.6 20.4 14.4 10.0 8.8 5.6 4.4 -
Retail prices (Rosstat) Next quarter 27 24 24 22 - - 20 - - 20 - - 20 - - 19 - - 21 - - - -
Tariffs (Rosstat) Next quarter 4 3 0 0 - - 5 - - 5 - - 0 - - 1 - - … - - - -
Change:
- Inflation expectations become better (more than 1 standard deviation)
- Inflation expectations become better (less than 1 standard deviation)
- Inflation expectations unchanged (±0,2 standard deviations)
- Inflation expectations become worse (less than 1 standard deviation)
- Inflation expectations become worse (more than 1 standard deviation)
*Balanced index is the difference between the shares of those who expect prices to rise and to fall
RUSSIAN MACRO UPDATE
ECONOMIC FORECASTS (1)Medium-term outlook for the Russian economy
18
* Banking sector claims on the economy mean all claims of the banking system on non-financial organisations and financial institutions and households in the currency of the Russian Federation, foreign currency, and precious metals, including loans extended (including overdue loans), overdue interest on loans, investments of credit institutions in debt and equity securities and promissory notes, other forms of stakeholding in the capital of non-financial organisations and financial institutions, and other receivables under settlement operations with non-financial organisations and financial institutions and households.
Source: Bank of Russia
RUSSIAN MACRO UPDATE
Key parameters of the Bank of Russia’s forecast scenarios
(growth as % of previous year, if not indicated otherwise)
2018
(actual)
BASELINE
2019 2020 2021 2022
Urals price, average for the year, US dollars per barrel 69.8 63 55 50 50
Inflation, as % in December year-on-year 4.3 4.0–4.5 4.0 4.0 4.0
Inflation, average for the year, as % year-on-year 2.9 4.6–4.8 4.0 4.0 4.0
Gross domestic product 2.3 0.8–1.3 1.5–2.0 1.5–2.5 2.0–3.0
Final consumption expenditure 1.8 1.0–1.5 1.5–2.0 1.5–2.0 1.8–2.3
– households 2.3 1.0–1.5 2.0–2.5 2.0–2.5 2.0–2.5
Gross capital formation 0.8 0.0–1.0 3.5–4.5 3.5–4.5 2.5–3.5
– gross fixed capital formation 2.9 0.0–1.0 3.5–4.5 3.5–4.5 2.5–3.5
Exports 5.5 −(0.3–0.8) 2.0–2.5 2.0–2.5 2.5–3.0
Imports 2.7 −(0.3)–0.2 3.0–3.5 3.5–4.0 2.5–3.0
Money supply in national definition 11.0 8–12 7–12 7–12 7–12
Banking system claims on the economy in rubles and foreign currency*
11.5 8–12 7–12 7–12 7–12
– claims on organisations in rubles and foreign currency;
growth as % over year8.4 7–10 6–10 6–10 6–10
– claims on households in rubles and foreign currency;
growth as % over year22.0 15−20 10−15 10−15 10−15
ECONOMIC FORECASTS (2)Medium-term outlook for the Russian economy
19
* Using the methodology of the 6th edition of “Balance of Payments and International Investment Position Manual” (BPM6). In the Financial account “+” stands for net lending, “-” – for net borrowing. Due to rounding total results may differ from the sum of respective values.
Source: Bank of Russia
RUSSIAN MACRO UPDATE
Russia’s balance of payments indicators*
(billions of US dollars)
2018
(actual)
BASELINE
2019 2020 2021 2022
Current account 113 83 56 39 28
Balance of trade 194 166 141 126 120
Exports 443 415 395 389 396
Imports 249 249 254 263 276
Balance of services -30 −31 −34 −36 −39
Exports 65 64 63 65 67
Imports 95 95 97 101 106
Balance of primary and secondary income -51 −52 −51 −52 −53
Current and capital account balance 112 83 56 39 28
Financial account (excluding reserve assets) 77 20 19 14 14
Government and the central bank 9 −20 −6 −6 −6
Private sector 68 40 25 20 20
Net errors and omissions 2 −3 0 0 0
Change in reserve assets ('+' – increase, '-' – decrease) 38 60 37 25 14
MONETARY POLICYDisinflationary and pro-inflationary risks are balanced till the end of 2019
20
Decisionas of September 6, 2019
The Bank of Russia cuts the key rate by 25 bp
to 7.00% p.a.
Signal
“…If the situation develops in line with the baseline forecast,
the Bank of Russia will consider the necessity of
further key rate reduction at one of the upcoming Board of
Directors’ meetings.
In its key rate decision-making, the Bank of Russia will take
into account actual and expected inflation dynamics
relative to the target and economic developments over
the forecast horizon, as well as risks posed by domestic and external conditions and the
reaction of financial markets.…”
RUSSIAN MACRO UPDATE
Inflation slowdown is continuing. At the same time, inflation expectations remain elevated.
The Russian economy’s growth rate is still coming in lower than the Bank of Russia’sexpectations.
Risks of a global economic slowdown have increased.
Risks of inflation accelerating or slowing down by the year-end are balanced.
In these circumstances and taking actual inflation dynamics into account, the Bank of Russiahas lowered its end-of-year annual inflation forecast for 2019 from 4.2-4.7% to 4.0-4.5%.
Moving on, according to the Bank of Russia’s forecast and taking into account the monetarypolicy stance, annual inflation will remain close to 4%.
7.00
4.3
0
2
4
6
8
10
12
2017 2018 2019
Key rate, % per annum Inflation, % YoY
Source: Bank of Russia
BANKING SECTOR: CURRENT AGENDAShaping a favourable operating environment and supporting market competition
FINANCIAL SECTOR OVERVIEW 22
New resolution mechanism: reducing financial costs and execution period of the resolution
procedure
Proportional banking regulation: differentiating regulatory burden for banks based on their size and simplifying requirements for smaller banks
focused on retail and SME lending
Imminent introduction of PTI ratio in order to affect the consumer lending market more
efficiently
Development of banking supervision: introduction of the Basel Committee on Banking
Supervision (BCBS) standard on capital requirements for banks` equity investment in
funds (since December 16, 2017)
Risk-oriented supervision: aiming to remedy problematic situations in banks at an early stage
Development of macroprudential regulation: streamlining the regulation, introducing
countercyclical approach
New regulations to the credit bureaus: authorising several strategic credit bureaus with the function of aggregating information on debt
payments
Basel II and III in force: Leverage ratio (except for banks with basic license), NSFR – for Domestic-
SIBs
BANKING SECTOR: PROPORTIONAL REGULATIONDifferentiating regulatory burden for banks depending on their size
23
Regulatory burden depends on license type
UNIVERSAL LICENSEBASIC LICENSE
• Minimum size of capital (own funds) –RUB 300 mln
• Only 5 mandatory requirements, including H1.0, H1.2, H3, H6, H25 ratios
• Limitations on international operations
• Simplified disclosure rules - not required to disclose information on accepted risks, their assessment or management procedures, or any information on financial instruments included in the calculation of their own funds (capital)
• Technically complicated international standards are non applicable
• Minimum size of capital (own funds) – RUB 1 bln
• May carry out all banking operations set forth by the law
• All mandatory requirements set by the Bank of Russia must be met
• Must be compliant with all international standards
• Financial reporting fully compliant with RAS and IFRS
• Higher capital adequacy requirements
• Advanced risk management approach
Systemically important financial institutions (SIFI) are subject to:
On 1 June 2017, Federal Law No. 92-FZ dated 1 May 2017 came into force. It envisages the introduction of proportional regulation designed to set up a regulatory balance for banks differing in scale and in the nature of operations. 138 banks hold basic license, as of 1 August 2019.
FINANCIAL SECTOR OVERVIEW
BANKING SECTOR: NEW RESOLUTION MECHANISMUnder new mechanism both costs of resolution and time required have been reduced significantly
24
RUB 2.6 tn have been provided to three banking
groups (Otkritie, B&N, Promsvyazbank)
RUB 758.3 bnfor additional capitalization
RUB 1.86 tn
for liquidity (deposits)*
* Have been fully repaid by the end of 2018
**BNA – Bank of non-core assets based on NB TRUST, ROST BANK and Bank AVB
Additional
RUB 379.1 bn
RUB 156.1 bn for the establishment of BNA**
RUB 42.7 bn for additional capitalization of Otkritie Bank
RUB 9.0 bn for additional capitalization of APB
RUB 128.7 bn for additional capitalization for MIB and RUB 39.9 bn
for liquidity (deposits)
RUB 2.7 bn for additional capitalization for VOCBANK
List of banks under financial rehabilitation procedure
1 Bank FC Otkritie (merged with B&N Bank)
2 Promsvyazbank
3 National Bank TRUST (with ROST Bank and AVB Bank)
4 Asian-Pacific Bank (APB)
5 Moscow Industrial Bank (MIB)
6 Volga-Oka Bank (VOCBANK)
On July 2, 2019, the Bank of Russia’s Board of Directors has decided tocomplete the implementation of bankruptcy prevention measures forBank FC Otkritie. Currently, the Bank complies with all Bank of Russia’sstatutory requirements for financial resilience and creditworthiness.
Promsvyazbank complies with all capital adequacy and liquidityrequirements and operates its business in its usual way. The bank fullyrepaid CBR deposits placed in the bank during resolution process.
As a result of the financial resolution measures and implementationof a new business model in the Asian-Pacific Bank, its financial standinghas been stabilised, new capital has been formed, outflow of its clients’funds has been stopped, its solvency has been restored and the Bank’sprofitability has become stable. The Bank is supposed to be sold in 2020after it discloses information about its 2019 performance to the public,including potential investors.
On 12 July 2019, the Bank of Russia approved amendments to the plan ofits participation in bankruptcy prevention measures for the MoscowIndustrial bank (MIB). These amendments provide for the Bank of Russiato allocate 128.7 billion rubles for recapitalisation purposes.
FINANCIAL SECTOR OVERVIEW
BANKING SECTOR: KEY FIGURESActive supervision and tighter regulation allowed to strengthen the health of the banking sector
25
Figure 12: Loans and deposits volume (RUB tn) and growth rates Figure 13: Banks hold an acceptable level of capital under Basel III
Figure 10: In 2013-2018 more than 400 licenses were revoked causing almost no impact on the banking sector’s total assets
Figure 11: Banking sector profitability restored to record high levels
Source: Bank of Russia
978
46441.6
92.5
16
32
48
64
80
96
112
0
200
400
600
800
1 000
1 200
2011 2012 2013 2014 2015 2016 2017 2018 6m19
Number of credit institutions, lhs Banking sector assets, RUB tn, rhs
994 1 005
1.9 1.9
15.217.1
0
3
6
9
12
15
18
100
300
500
700
900
1 100
1 300
2013 2014 2015 2016 2017 2018 6m2019
Profit, bln RUB, lhs ROA, rhs ROE, rhs
44.0
49.8
50.355.8
1.5
11.610.6 6.6
-4
-1
2
5
8
11
14
30
35
40
45
50
55
60
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Corporate and retail loans, lhs Corporate and retail deposits, lhs
Loans YoY growth*, % rhs Deposits YoY growth*, % rhs
*421 banks and 43 non-banking credit organisations
*YoY, ccy adj. by credit institutions operating as of the reporting date *excluding credit institutions under financial rehabilitation procedure
FINANCIAL SECTOR OVERVIEW
13.5 13.7
12.5 12.713.1
12.1 12.2 11.8
14.2* 14.5* 14.2*
10
11
12
13
14
15
2012 2013 2014 2015 2016 2017 2018 6m19
Capital adequacy ratio, N1.0, %
BANKING SECTOR: FUNDING The funding of the banking sector mostly comes from corporate and retail deposits
26
Figure 16: Operations with the Bank of Russia, tn RUB Figure 17: Sources of funding, % of total liabilities
Figure 14: In June 2019 corporate deposits grew by 5.1% YoY to RUB 26.8 tn
Figure 15: In June 2019 retail deposits demonstrated growth of 8.0% YoY, reaching RUB 29 tn
Source: Bank of Russia
27.1 26.8
3.8% 5.1%
-10%
-5%
0%
5%
10%
15%
20%
18
20
22
24
26
28
30
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Corporate deposits, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs
23.2
29.0
19.2%
8.0%
0%
5%
10%
15%
20%
25%
30%
18
20
22
24
26
28
30
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Retail deposits, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs
-2.90
2.89
-5.5
-3.5
-1.5
0.5
2.5
4.5
6.5
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Borrowings from the Bank of Russia (with minus sign)
Claims to the Bank of Russia
Net claims to the Bank of Russia, rhs
23.8%
30.2%12.0%
34.0%
Retail deposits Corporate deposits
Central bank funding Other sources
31.3%
29%2.8%
36.9%
FINANCIAL SECTOR OVERVIEW
1.01.2015 1.07.2019
BANKING SECTOR: INTEREST RATESInterest rates plateaued at the end of 2018 following tighter monetary policy
Колонтитул раздела или подраздела 27
Figure 25: Weighted average interest rates on loans in rubles, %
Figure 26: Weighted average interest rates on deposits in rubles, %
Figure 27: Max interest rate on retail deposits in rubles of top-10 banks and Bank of Russia’s policy rate, %
6.77
6.92
4.0
6.0
8.0
10.0
12.0
14.0
16.0
01
.14
06
.14
11
.14
04
.15
09
.15
02
.16
07
.16
12
.16
05
.17
10
.17
03
.18
08
.18
01
.19
06
.19
Corporate deposit rates Retail deposit rates
9.83
13.37
4.0
8.0
12.0
16.0
20.0
24.0
28.0
01
.14
06
.14
11
.14
04
.15
09
.15
02
.16
07
.16
12
.16
05
.17
10
.17
03
.18
08
.18
01
.19
06
.19
Corporate loan rates Retail loan rates
Source: Bank of Russia
7.50%
7.13%
4%
6%
8%
10%
12%
14%
16%
18%
01
.14
07
.14
01
.15
07
.15
01
.16
07
.16
01
.17
07
.17
01
.18
07
.18
01
.19
07
.19
Key rate
Max retail deposit rate of top-10 banks
BANKING SECTOR: LENDING Retail loans remain the key driver of credit growth
28
Figure 20: Share of bad corporate loans* reached 12.4%, while the loan loss reserves to bad loans ratio amounted to 83.8%
Figure 21: Retail loans portfolio demonstrates improved quality: the share of bad loans* reached 7.3%
Figure 18: Corporate lending has stabilized around 6.8% YoY Figure 19: Retail lending increased 23.1% YoY in June 2019
* Loans classified into quality category of IV and V according to the requirements of Regulation No.590-P2.Quality category IV – high credit risk (probability of financial losses due to non-performance or improper performance of obligations by the borrower requires its depreciation by 51 to 100 per cent);Quality category V – no possibility of loan repayment due to the borrower’s inability or refusal to meet loan commitments, which requires complete (100 per cent) depreciation of the loan.
33.3 33.5
4.1% 6.8%
-30%
-20%
-10%
0%
10%
20%
30%
26.5
28.0
29.5
31.0
32.5
34.0
35.5
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Corporate loans, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs
10.7
16.3
-5.3%
23.1%
-10%
-5%
0%
5%
10%
15%
20%
25%
9.5
10.5
11.5
12.5
13.5
14.5
15.5
16.5
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Retail loans, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs
9.1%
12.4%92.3%
83.8%
80%
83%
85%
88%
90%
93%
95%
2%
4%
6%
8%
10%
12%
14%
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Share of bad loans, lhs Loan loss reserves to bad loans ratio, rhs
12.9%
7.3%95.6%
111.3%
94%
97%
100%
103%
106%
109%
112%
7%
8%
9%
10%
11%
12%
13%
14%
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Share of bad loans, lhs Loan loss reserves to bad loans ratio, rhs
Source: Bank of Russia
FINANCIAL SECTOR OVERVIEW
BANKING SECTOR: MORTGAGE SEGMENTMortgage lending is characterised by high growth rates and decent asset quality
29
Figure 30: Distribution of mortgage borrowers by LTV Figure 31: Risk weights applied to mortgage loans
Figure 28: Mortgage lending increased 21.7% YoY in June 2019 Figure 29: Share of NPLs remains at historically low levels
Source: Bank of Russia
4.10
7.19
12.0%
21.7%
0%
5%
10%
15%
20%
25%
30%
2
3
4
5
6
7
8
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Mortgage loans, RUB tn, lhs
YoY (ccy adj., by credit institutions operating as of the reporting date), rhs
3.0%
1.5%113.0%
141.1%
112%
117%
122%
127%
132%
137%
142%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
NPL ratio, lhs Loan loss reserves to bad loans ratio, rhs
0.6%2.1%
4.1%7.1%
9.7%11.9%
22.6%
40.6%
1.2%
0%
7%
14%
21%
28%
35%
42%
10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% >90%
4Q2017 1Q2018 2Q2018
3Q2018 4Q2019 1Q2019
100 100150
+50 +50
+150
+50 +50
0%
50%
100%
150%
200%
250%
300%
Loans for financing underequity construction
agreements withdown payment <20%
Mortgages withLTV>80%
Mortgages withLTV>90%
end 2017 January 1, 2018 January 1, 2019
200%
300%
200%
LTV interval
FINANCIAL SECTOR OVERVIEW
BANKING SECTOR: UNSECURED CONSUMER LENDINGThe unsecured lending market is at an ascending stage of the credit cycle
30
Source: Bank of Russia
Figure 22: Consumer lending increased 24.7% YoY in June 2019
Figure 23: Share of NPLs decreased to 8.4%
Figure 24: Risk weights applied to unsecured consumer loans, %
100 100 110140
300%
600%
+10+10+20
+30+50
+60
+30+30
+30+30
0
100
200
300
400
500
600
10-15% 15-20% 20-25% 25-30% 30-35% 35%+
Effective interest rate
March 1, 2017 May 1, 2018 September 1, 2018 April 1, 2019
150%170%
200%230%
5.60
8.19
-11.4%
24.7%
-14%
-8%
-2%
4%
10%
16%
22%
28%
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Unsecured consumer loans, RUB tn, lhs
YoY (by credit institutions operating as of the reporting date), rhs
16.9%
8.4%
103.6%
127.6%
100%
105%
110%
115%
120%
125%
130%
8%
10%
12%
14%
16%
18%
20%
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
NPL ratio, lhs Loan loss reserves to bad loans ratio, rhs
Against the background of advancing growth in unsecuredconsumer lending relative to households’ income, The Bank ofRussia revised the scale of risk weights for such loans in 2017-2018 in order to prevent excessive risk-taking in this segment
FINANCIAL SECTOR OVERVIEW
BANKING SECTOR: INTRODUCTION OF PTI The Bank of Russia introduces a payment to income ratio for regulation purposes
31
Effective from 1 October 2019, the Bank of Russia intends to set add-ons to the risk coefficients depending on the payment to income ratio (PTI) and the effective interest rate (EIR).
EIR interval, % 0-10 10-15 15-20 20-25 25-30 30-35 35+
Value of add-ons 0.6 0.7 1.1 1.5 1.8 2.1 5.0
PTI interval, %
EIR
in
terv
al,
%
0-30 30-40 40-50 50-60 60-70 70-80 80+
0-10 0.3 0.3 0.3 0.6 0.7 0.9 1.1
10-15 0.5 0.5 0.5 0.7 0.8 1.0 1.2
15-20 0.7 0.7 0.7 1.1 1.3 1.4 1.6
20-25 1.0 1.0 1.0 1.5 1.7 1.8 2.0
25-30 1.3 1.3 1.3 1.8 1.9 2.0 2.2
30-35 2.0 2.0 2.0 2.1 2.2 2.3 2.5
35+ 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Values of add-ons to the risk coefficientsapplied to unsecured consumer loanssubject to calculation of PTI
Values of add-ons to the risk coefficientsapplied to unsecured consumer loansfor which PTI calculation is notobligatory
Higher level of add-ons will be applied toloans with PTI exceeding 50%.
Banks will calculate PTI in accordance withAppendix 1 to Bank of Russia OrdinanceNo.4892 U when making a decision ongranting a loan in the amount (total creditamount) of ₽10,000 or more or an increasein the total credit amount on a bank card.
Source: Bank of Russia
FINANCIAL SECTOR OVERVIEW
BANKING SECTOR: DEDOLLARISATIONDollarization of the banking sector has notably reduced over the last years
32
Figure 34: Share of corporate and retail FX deposits in total amount of deposits has fallen
Figure 35: Risk weights applied to the FX assets, %
Figure 32: Corporate FX lending declined significantly over the past few years
Figure 33: Retail FX loan portfolio is insignificant in size
Source: Bank of Russia
100 100 100 100
+10+30
+50
+10
+20
+20
40
60
80
100
120
140
160
FX loans toexporters
Other corporateFX loans
Commercial FXmortgages
Securities of non-resident
companies
end 2015 May 1, 2016 July 1, 2018
110%
130%150% 150%
181.7
133.5
39.8%
25.2%
25.0%
27.5%
30.0%
32.5%
35.0%
37.5%
40.0%
42.5%
120
130
140
150
160
170
180
190
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Corporate loans, USD bn, lhs Share of FX loans in total amount of loans, rhs
4.0
1.5
2.7%
0.6%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1.0
1.5
2.0
2.5
3.0
3.5
4.0
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Retail loans, USD bn, lhs Share of FX loans in total amount of loans, rhs
48.9%
34.9%
29.4%
20.9%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
32.5%
34.0%
36.5%
39.0%
41.5%
44.0%
46.5%
49.0%
51.5%
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Share of FX deposits in total corporate deposits, lhsShare of FX deposits in total retail deposits, rhs Retail Corporate
FINANCIAL SECTOR OVERVIEW
4.25 4.25
+1.75 +2.75+1
+1+1
8% 8%
July 1, 2019August 1, 2018August 1, 2016
end 2015
Reserve requirements
BANKING SECTOR: CAPITAL ADEQUACYHigh quality capital base and solid capital adequacy levels under Basel III standards
33
Figure 36: Capital adequacy ratio for the banking sector decreased over from 12.9% (1.01.16) to 11.8% (1.07.19) mostly due to the procedures of financial rehabilitation of the large credit institutions
Figure 37: Credit organizations with capital exceeding RUB 25 bnhave lower buffer vs N1.0 minimum requirement due to the economies of scale
9 009
9 930
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
11 000
0
2
4
6
8
10
12
14
16
18
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
RU
B b
n
%
Ratio of own funds (capital) to risk-weighted assets (Basel III N1.0 ratio)Tier I capital ratio (N1.2)Common equity Tier I capital ratio (N1.1)Own funds (Basel III capital), RUB bn, rhs
12.7
8.5
8.2
11.8
9.2
8.6
13.3
5
10
15
20
25
30
35
40
45
50
less than300 mln
rub
300 - 1bln rub
1-10 blnrub
10 - 25bln rub
25 - 50bln rub
50 - 100bln rub
100 -250 bln
rub
morethan 250bln rub
%
Capital adequacy ratio N1.0 (by capital size)
Capital adequacy ratio N1.0 as of 1.07.2019 (11.8%)
11.8
Source: Bank of Russia
FINANCIAL SECTOR OVERVIEW
BANKING SECTOR: SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONSThe Bank of Russia has approved the list of SIFI and buffers for capital adequacy ratios
Колонтитул раздела или подраздела 34
Capital adequacy requirements List of systemically important financial institutions
№ Company name Assets, RUB tn
1 Sberbank 28.8
2 VTB Bank 14.4
3 Gazprombank 6.3
4 Russian Agricultural Bank 3.4
5 Alfa-Bank 3.4
6 Bank FC Otkritie 2.3
7 Credit Bank of Moscow 2.2
8 Promsvyazbank 1.9
9 UniCredit Bank 1.410 Raiffeisenbank 1.3
11 Rosbank 1.2
Minimum Bank of Russia requirements for capital adequacy ratios
Common equity Tier 1 capital ratio (N1.1) 4.50%
Tier 1 capital (N1.2) 6.00%
Total capital adequacy ratio (N1.0) 8.00%
Values of capital buffers 2017 2018 2019Capital concervation buffer 1.25% 1.875% 2.50%*SIFI buffer 0.35% 0.65% 0.65%Countercyclical buffer 0% 0% 0%
Minimum capital adequacy ratios for SIFI 2017 2018 2019N1.1 6.1% 7.0% 7.65%N1.2 7.6% 8.5% 9.15%N1.0 9.6% 10.5% 11.15%
Systemically important financial institutions account for 69% of total assets of the Russian banking sector *Capital conservation buffer will be raised in accordance with the
schedule approved by the Bank of Russia – it will stand at 1.875% from 1January 2019, 2.0% from 1 April 2019, 2.125% from 1 July 2019, 2.25%from 1 October 2019, and 2.5% from 1 January 2020.
Assets as of August 2019
FINANCIAL STABILITYMacroprudential policy aimed at identifying and preventing potential systemic risks
35
Decisionas of August 30, 2019
“The Bank of Russia’s Board of Directors has decided to keep
the countercyclical capital buffer (CCB) rate for Russian
credit institutions at 0% of risk weighted assets…”
“…In the context of moderately growing general credit to the
economy and considering that increased risk ratios are
applied in several lending segments, it has been deemed
unreasonable to set the countercyclical capital buffer
above zero...”
Credit activityThe private sector’s debt burden measured as the debt-to-GDP ratio remains relatively stable as, among other things, debts of non-financial organisations on external liabilities and internal FX loans remain stable. Non-financial organisations total debt on external liabilities, internal loans and debt securities increased by 3.2%1 over the past 12 months as of 1 July 2019.
The household debt burden is rising2: during the first half of the year, the debt service to income ratio increased from 9.9% to 10.4% driven, primarily, by unsecured consumer loans. The debt service to income ratio on retail loans grew from 8.3% to 8.8% over the first six months of 2019 and came close to the peak values of 2014 (9.3%). In order to limit procyclical risks associated with the increase of households’ debt burden, the Bank of Russia applies risk ratio buffers.
Retail lending risksThe annual growth rates of unsecured consumer lending decreased to 24.5%3 as of 1 August 2019 (from 25.3% as of 1 May 2019), but remains high. Increased risk ratio buffers to new unsecured consumer loans issued from 1 October 2019 will be applied depending not only on the weighted average effective interest rate (EIR), but also on the debt burden ratio of an individual.
To mitigate systemic risks associated with mortgage loans with a 10-20% down payment, the Bank of Russia raised risk ratio buffers for newly issued mortgage loans effective from 1 January 2019. This measure resulted in the decrease in the share of loans with down payments ranging from 10 to 20% issued in 2019 Q2. Such loans accounted for 36.7%4 of all mortgage loans (40.9% in 2019 Q1, and 43.2% in 2018 Q4).
Capital adequacyThe capital adequacy (Basel III N1.0 ratio) for the banking sector remains at an acceptable level of 14.2%5 asof 1 July, 2019. The effective macroprudential measures form additional capital stock which accounts for 0.7pp of the banking sector’s capital adequacy6.
FINANCIAL SECTOR OVERVIEW
1 Adjusted for FX revaluation (exchange rate as of 1 July 2019).2 It is calculated as the ratio of regular household loan repayments to household disposable income. This indicator includes disposable income of all Russian households, including individuals without any loans. Therefore, this indicator is undervalued.3 Credit institutions’ financial statements as per Form 0409115 (Section 3, Credit Exposure: Other Consumer Loans, Grouped into a Homogeneous Loan Portfolio). For credit institutions operating as of the last reporting date, including banks that
underwent restructuring.4 According to the quarterly survey of banks (PJSC Sberbank, VTB Bank (PJSC), GAZPROMBANK (JSC), PJSC ROSBANK, JSC UniCredit Bank, JSC Raiffeisenbank).5 Except for banks undergoing resolution, including with the involvement of the Banking Sector Consolidation Fund.6 If the buffers to risk weights were reduced to zero, the capital adequacy of the banking sector would be higher by 0.7 pp.
SECURITIES MARKET (1)Russia’s financial market has been aligned with best international practices
36
• Euroclear and Clearstream settlement for equities and bonds
• Unified collateral pool for equities, bonds and FX markets
• International clearing system membership; Direct access to FX trading for large corporates
• Local investor base development (individual investment account system, tax incentives, etc.)
• Unified license covering both depository and registrar operations.
• MICEX and RTS merged into the MoscowExchange
• Establishment of a Central SecuritiesDepository and unification of CCP acrossall asset classes
• T+2 settlement on equities, T+1 on OFZs,T+0 on corporate bonds
• Creation of a two-tier Quotation List within the stock exchange listing
• Strong criteria for inclusion in the top-tier Quotation list
• Streamlined dividend rules for SOEs• Corporate standards aligned with best
international practices• Establishing of a Listing Committee at MOEX
• Mandatory audited IFRS for all public companies
• Strengthened regulation to prevent market manipulation and insider trading
• Improved disclosure practices• Report on Corporate Governance Code
compliance in the annual report• Requirement to have a written description of
dividend policy for the top-tier Quotation list• Development of basic standards for
professional market participants activities
Crisis-proven market infrastructure
Upgraded corporate governance
Simplified market access
Increased transparency
FINANCIAL SECTOR OVERVIEW
SECURITIES MARKET (2)Growing a deeper Russian bond market with strong potential
37
Figure 40: “Bondization” of the Russian financial market Figure 41: Corporate loans vs corporate bonds in Russia, RUB tn
Figure 38 : Volume of the Russian local bond market, RUB tn Figure 39: Volume of the Russian corporate bond market, RUB tn
Source: Moscow Exchange, Cbonds
2.2 2.9 3.1 3.5 3.9 4.7 5.0 5.5 7.2 7.92.53.0 3.6 4.3 5.3
6.68.1
9.2
11.111.9
0
4
8
12
16
20
24
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
OFZ Corporate Bonds
4.75.9 6.7 7.8
9.211.3
13.114.7
18.319.8
2.9 3.2 3.6 4.55.9
9.3 10.2 9.711.5 11.9
2.5 3.0 3.54.2
5.2
6.78.0 8.0
7.6 7.6
0
4
8
12
16
20
24
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
RUB bonds Eurobonds
5.4 6.2 7.18.7
11.1
16.018.2 17.7
19.119.5
8.7 10.3 9.4 9.3 9.2 10.8
15.3
10.6 11.213.2
16.5
21.2
0
5
10
15
20
25
2013 2014 2015 2016 2017 2018
Equity market trading volume, RUB tnBond market trading volume*, RUB tn
81% 80% 77% 73% 71% 71%
19%
20%
23%
27%29% 29%
10
20
30
40
50
60
70
2009 2011 2013 2015 2017 2018
Loans (incl. foreign debt) Corporate bonds (incl. eurobonds)
29
6865
68
35
48
CAGR+20%
CAGR+16%
FINANCIAL SECTOR OVERVIEW
SECURITIES MARKET (3)Russian OFZ market provides relatively high yields amid investment grade reliability
38
Figure 44: Bond market yields, key rate and RUONIA (% RUB) Figure 45: EM 10Y bond yields (% USD) on the background of credit ratings
Figure 42: Russian OFZ market volume keeps growing Figure 43: Zero-coupon OFZ yield curve, %
Source: Bank of Russia, Moscow Exchange, IMF and World Federation of Exchanges
6.74
8.6
33.1 30.0
10
15
20
25
30
35
40
5.8
6.3
6.8
7.3
7.8
8.3
8.8
1.0
1.1
8
1.0
2.1
8
1.0
3.1
8
1.0
4.1
8
1.0
5.1
8
1.0
6.1
8
1.0
7.1
8
1.0
8.1
8
1.0
9.1
8
1.1
0.1
8
1.1
1.1
8
1.1
2.1
8
1.0
1.1
9
1.0
2.1
9
1.0
3.1
9
1.0
4.1
9
1.0
5.1
9
1.0
6.1
9
1.0
7.1
9
1.0
8.1
9
OFZ market volume, RUB tn, lhs
Share of non-residents holdings, %, rhs
5
7
9
11
13
15
17
19
07
.14
01
.15
07
.15
01
.16
07
.16
01
.17
07
.17
01
.18
07
.18
01
.19
07
.19
Cbonds-GBI RU 5Y YTM eff
RUONIA Index
CBR Key Rate
Russia
BrazilChina
SoA
Turkey
Mexico
PolandHungary
Philippines
Malaysia
KoreaKazakhstan
Indonesia
Peru Chile
Argentina
1.5
3.5
5.5
7.5
9.5
11.5
13.5
B B+ BB- BB BB+ BBB- BBB BBB+ A - A+ AA- AA AA+ AAA
6.00
8.63
7.43
8.75
6.69
7.88
6.0
6.5
7.0
7.5
8.0
8.5
9.0
3m 6m 9m 1 2 3 5 7 10 15 20 30
Years to maturity
April -18 March-19 August -19
FINANCIAL SECTOR OVERVIEW
Russia’s sovereign ratingsS&P: BBB- (stable), as of 18 Jan 2019Moody’s: Baa3 (stable), as of 08 Feb 2019Fitch: BBB (stable), as of 9 Aug 2019
SECURITIES MARKET (4)Demand for OFZs placements remains sustainably high
39
0
1
2
3
4
5
6
7
0
20
40
60
80
100
120
140
10
.01
.20
18
17
.01
.20
18
24
.01
.20
18
31
.01
.20
18
07
.02
.20
18
14
.02
.20
18
21
.02
.20
18
28
.02
.20
18
07
.03
.20
18
14
.03
.20
18
21
.03
.20
18
28
.03
.20
18
04
.04
.20
18
18
.04
.20
18
25
.04
.20
18
16
.05
.20
18
23
.05
.20
18
30
.05
.20
18
06
.06
.20
18
13
.06
.20
18
20
.06
.20
18
27
.06
.20
18
04
.07
.20
18
11
.07
.20
18
18
.07
.20
18
25
.07
.20
18
01
.08
.20
18
08
.08
.20
18
15
.08
.20
18
29
.08
.20
18
03
.10
.20
18
10
.10
.20
18
17
.10
.20
18
24
.10
.20
18
31
.10
.20
18
07
.11
.20
18
14
.11
.20
18
21
.11
.20
18
28
.11
.20
18
05
.12
.20
18
12
.12
.20
18
19
.12
.20
18
26
.12
.20
18
16
.01
.20
18
23
.01
.20
19
30
.01
.20
19
06
.02
.20
19
13
.02
.20
19
20
.02
.20
19
27
.02
.20
19
06
.03
.20
19
13
.03
.20
19
20
.03
.20
19
27
.03
.20
19
03
.04
.20
19
10
.04
.20
19
17
.04
.20
19
24
.04
.20
19
08
.05
.20
19
15
.05
.20
19
22
.05
.20
19
29
.05
.20
19
05
.06
.20
19
19
.06
.20
19
26
.06
.20
19
03
.07
.20
19
10
.07
.20
19
17
.07
.20
19
24
.07
.20
19
31
.07
.20
19
07
.08
.20
19
14
.08
.20
19
21
.08
.20
19
28
.08
.20
19
Foreign bank subsidiaries Non-credit financial institutions Non-residents
Other banks Systemically-important credit institutions Activity ratio, rhs
Figure 46: OFZ placement dynamics in 2018 and 2019 (RUB bn)
*Starting January 1, 2019 the “activity ratio” calculated as the volume of demand for OFZ to the volume of OFZ supply announced by the Ministry of Finance was replaced by the “meet demand” ratio calculated as the volume of the placement to the volume of demand for OFZ
Source: Bank of Russia, Ministry of Finance, National Settlement Depository
FINANCIAL SECTOR OVERVIEW
SECURITIES MARKET (5)Russian equity market provides growth potential and attractive dividend yields
40
Figure 49: Russian equities market trading volumes proves stable Figure 50: Dividend yield (12M): Russia vs. EM, %
Figure 47: Russian Equity market cap, bln RUB & bln USD Figure 48: Domestic market capitalization to GDP ratio reflects undervalued Russian financial market (of GDP, %)
Source: Bloomberg, Moscow Exchange, International Monetary Fund and World Federation of Exchanges
48.5%39.5%
0
30
60
90
120
150
180
UK Japan Korea US China Russia Euro area
2016 2017
Russia’s 2018 stock market capitalization to GDP = 39.5%
367
687
0
200
400
600
800
1000
1200
01
.16
03
.16
05
.16
07
.16
09
.16
11
.16
01
.17
03
.17
05
.17
07
.17
09
.17
11
.17
01
.18
03
.18
05
.18
07
.18
09
.18
11
.18
01
.19
03
.19
05
.19
07
.19
15 000
20 000
25 000
30 000
35 000
40 000
45 000Market cap, bln RUB, lhs Market cap, bln USD, rhs
5.13
7.46
3.02
2.98
1.5
2.5
3.5
4.5
5.5
6.5
7.5
01
.16
04
.16
07
.16
10
.16
02
.17
05
.17
08
.17
12
.17
03
.18
06
.18
09
.18
01
.19
04
.19
07
.19
Russia Emerging markets
2.5
3.0
1.664
2.766
1.600
1.800
2.000
2.200
2.400
2.600
2.800
0.5
1
1.5
2
2.5
3
3.5
03
.15
06
.15
09
.15
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
Trading volumes, RUB tn, lhs MOEX Index, rhs
FINANCIAL SECTOR OVERVIEW
SECURITIES MARKET (6)Russian equity market remains undervalued despite strong performance in recent years
41
Figure 51: Russian MSCI index vs EM peers (05.01.15 = 100%) Figure 52: Forward P/E ratio (12m), MSCI Russia vs MSCI EM
Source: Bloomberg
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
31
.12
.14
31
.05
.15
31
.10
.15
31
.03
.16
31
.08
.16
31
.01
.17
30
.06
.17
30
.11
.17
30
.04
.18
30
.09
.18
28
.02
.19
31
.07
.19
Russia India Brazil Turkey
China South Africa EMEA
5.6
12.3
-54%
-65%
-60%
-55%
-50%
-45%
-40%
2
4
6
8
10
12
14
16
31
.12
.14
31
.05
.15
31
.10
.15
31
.03
.16
31
.08
.16
31
.01
.17
30
.06
.17
30
.11
.17
30
.04
.18
30
.09
.18
28
.02
.19
31
.07
.19
MSCI Russia, lhs MSCI EM, lhs Russia to EM P/E discount, rhs
FINANCIAL SECTOR OVERVIEW
SECURITIES MARKET (7)Moscow Exchange group offers the best infrastructure in its class
42
National Clearing Centre
CCP, risk and collateral management, clearing,
risk netting
National Settlement Depository
CSD, settlement, depository, safekeeping,
repository
TRADING
CLEARING
SETTLEMENT
MOEX captures the entire value chain for end-customers, offering a one-stop shop for listing,risk management, market data, multi-assettrading, clearing settlement and custody
MOEX is strategically positioned to benefitfrom the development of Russia’s capitalmarkets in the coming years
Fully vertically integrated infrastructure withregulation and oversight by theBank of Russia
Eligible collateral to trade any asset class
Foreign investors have Direct Market Access(DMA), Sponsored Market Access (SMA) andInternational Clearing Membership (ICM)services at their disposal
Moscow Exchange
listing and electronic trading, including DMA
services
Source: Moscow Exchange
FINANCIAL SECTOR OVERVIEW
SECURITIES MARKET (8)Russian financial market has necessary infrastructure and regulation for trading OTC
43
Source: Moscow Exchange
Variety of instruments and service providers
Russia adheres to G20 decisions in respect of OTC derivatives
reforms
Non-financial counterparties have access to a broad range of hedginginstruments offered by banks (including structured products)
National Settlement Depository provides collateral managementservices (repo)
Robust legal protection in place
Enforceability of close-out netting in derivatives and repo markets isconfirmed by relevant legal opinions (ISDA, ICMA)
Russian standard documentation developed by SROs and approved bythe Bank of Russia
Trade reporting to repositories (two authorized repositories available)
National Clearing Centre provides clearing services for OTC trades
FINANCIAL SECTOR OVERVIEW
SECURITIES MARKET (9)Rapidly developing retail market with strong tax incentives and accelerating FinTech
44
2.6 million retail investors were registered withthe Moscow Exchange at the end of June 2019
More than 219 000 retail investorswere reported as “active” traders
Corporate bonds with yield of under12.75% became tax-exempt onJanuary 1, 2018
Capital gains on securities held for
more than 3 years are tax-exempt
Tax deductions for IIA type A – maxRUB 52 000; for IIA type B – at the rateof investment income
Recent regulatory changes
Retail investors allowed to openbrokerage and management accountsonline
Individual Investment Accounts forprivate investors since 2015.• RUB 1 mln – max sum to invest in a year.
• More than 825k accounts opened as of May
2019
Source: Moscow Exchange
57 946
78 63974 911
109 538
190 235
219 409
28 068 34 19644 860 46 285
55 476
57 064
895 8 03815 159 25 461
60 65170 047
0
50 000
100 000
150 000
200 000
250 000
December2013
December2014
December2015
December2017
December2018
June 2019
Equities market Derivatives market FX market
Figure 53: Number of active retail client accounts
FINANCIAL SECTOR OVERVIEW
CORPORATE GOVERNANCENew corporate governance standards reflect best international practices
45
Source: Moscow Exchange
Only ratings by approved Russian rating agencies will beconsidered valid for listing requirements for Russianissuers` bonds
Corporate actions reform
Information on corporate actions cascaded toshareholders from issuer through CSD and nominees
E-proxy voting and E-voting platform for shareholdershas been developed
A number of Russian companies have alreadyimplemented an online voting system in 2017
E-voting for bondholders has been implemented andsuccessfully tested
Listing reform on Moscow Exchange
Simplified listing structure: 2 quotation lists and 1 non-quotation list instead of a 6-tier system
Stricter corporate governance criteria for inclusion inthe top-tier list
Stricter requirements for Directors to be consideredindependent
Next stage 2019
Blockchain technology
NSD used a blockchain-based settlement platform tocomplete an inaugural placement ofa RUB 500 mln bond issue in 2017
In 2018 first Russian bonds via smart contracts wereissued for a total sum of RUB 750 mln
CBR corporate governance report: annual monitoring of corporate governance practice and publication of the report on the CBR official site (only in Russian)
Corporate governance
JSC Law amended July 2018: Strengthening the role of the Board of Directors in JSC Mandatory risk-management, internal control in
public companies Mandatory audit committees and internal audit
functions in public companies (starting July 2020) Disclosure reform
Securities
New types of securities – structured bonds, perpetualbonds, priority dividends non-voting preferred shares
FINANCIAL SECTOR OVERVIEW
COUNTERING MALPRACTICEBank of Russia supervises conduct of financial market participants to promote fair competition
46
•Bank of Russia improves continuous monitoring of on-exchange trading for the purpose of maintaining financial stability and preventing system shocks caused by misconduct
• Bank of Russia successfully eliminates competitive advantages of unlicensed firms by decreasing their number. Since 2015 detriment caused by financial pyramids decreased by more than 5x times
•In 2015 Bank of Russia became a signatory to the IOSCO MMoU
•Intense cooperation with foreign financial market regulators in terms of information exchange, including confidential information
•Elaboration on international initiatives
• Bank of Russia has implemented an effective system for countering malpractice includingmarket manipulation and insider trading, aimed at ensuring investors’ equality and fair pricing .
Insider trading and market
manipulation
International cooperation
Enhanced consolidated
market analysis
Unlicensed firms and Pyramid Scheme
FINANCIAL SECTOR OVERVIEW
INVESTMENT FUNDSLocal institutional investor base: the potential of investment funds
47
Figure 56: Number of investments funds in Russia by the type Figure 57: Breakdown of investment funds’ assets by the type (as of December 31, 2018)
Figure 54: Majority of savings in Russia is held on bank deposits and in cash*
Figure 55: Assets of investments funds in Russia (RUB tn)
* As of the end of 2017Source: World Bank, IMF, Bank of Russia, Moscow Exchange
14%24%
39% 32%20% 18%
41%59%
69%
13%
32%
61% 37%
23%
25%21%
6%
27%
6%
51%
12% 23%
42%50% 61%
53%
13% 12%
USA UK Germany Italy Brazil Mexico China India Russia
Bank deposits Cash Insurance and pension assets Securities Other
2.5
3.7
3.1%
3.5%
3.1%
3.2%
3.3%
3.4%
3.5%
3.6%
3.7%
1.6
2.0
2.4
2.8
3.2
3.6
4.0
03
.15
06
.15
09
.15
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
Assets, RUB tn, lhs Assets to GDP, %, rhs
1135 1150 1131 1132 1136 1131 1117 1 109 1 111 1128
353 356228 332 331 327 325 312 303 268
46 4743
36 37 39 43 43 42 401 4
09.1
6
12.1
6
03.1
7
06.1
7
09.1
7
12.1
7
03.1
8
06.1
8
09.1
8
12.1
8
Closed-end Open-end Interval ETF
1534 1497150415001553 1402 1485 1464 1456 1440
9%
20%
6%
1%5%25%
18%
16%
Cash
Equities
Bonds
Government bonds
Foreign securities
Real estate
Authorized capital
Other
FINANCIAL SECTOR OVERVIEW
NON-STATE PENSION FUNDSLocal institutional investor base: the potential of non-state pension funds
48
Source: Bank of Russia
Figure 58: Pension assets in Russia (RUB tn)
Figure 59: Pension system asset allocation (as of December 31, 2018, %)
Bank of Russia became a regulator of the pensionsystem in 2013. Since then a number of changeshas been adopted to strengthen the non-statepension system:
‘one-year non-loss’ rule was extended to ‘five-year non-loss’ rule
stress-testing mechanism introducedcustomers are now encouraged to stay with the
same fund for not less than 5 years since 2014 the Deposit Insurance Agency (DIA)
guarantees the nominal value of mandatorysavings
non-state pension funds are to bear fiduciaryresponsibility (since March 18, 2018)
non-state pension funds are to disclose theirinvestment portfolios
corporatisation of non-governmental pensionfunds (NPFs) completed
work on individual pension accounts reform isin progress
1.90 1.94 2.06 2.02 1.91 1.78
1.09 1.13 1.71 2.15 2.47 2.64 0.83 0.90 0.99 1.11 1.21 1.25
2013 2014 2015 2016 2017 2018
Non-state pension funds. Reserves
Non-state pension funds. Mandatory savings
State pension fund. Mandatory savings
3.82 3.974.76
5.28 5.595.67
21%6% 8%
0%9% 16%
36% 44% 38%
38% 35%14%
4% 5%23%
State pension fund NPFs Mandatory savings NPFs Reserves
Cash Equities Corporate bonds Government bonds Other
FINANCIAL SECTOR OVERVIEW
INSURANCELocal institutional investor base: the potential of insurance market
49
Figure 62: Premium structure in 2018 shows high level of market diversification
Figure 63: In 2018 market remained highly competitive with the Herfindahl-Hirschman Index equal to 550.6
Figure 60: Premium volume is gradually growing Figure 61: Assets hit 2.8% of GDP
Source: Bank of Russia
266.4
385.7
112.9
153.51.3
1.4
1.01.11.21.31.41.51.61.7
50100150200250300350400
03
.15
06
.15
09
.15
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
Premiums, RUB bn, lhs
Payment of claims, RUB bn, lhs
Premiums as % of GDP, rhs
1 609.42 918.9
943.3
1 831.12.0
2.8
1.31.51.82.02.32.52.83.0
0450900
1 3501 8002 2502 7003 150
03
.15
06
.15
09
.15
12
.15
03
.16
06
.16
09
.16
12
.16
03
.17
06
.17
09
.17
12
.17
03
.18
06
.18
09
.18
12
.18
Assets, RUB bn, lhs
Reserves, RUB bn, lhs
Assets as % of GDP, rhs
62.5
76.7
65.4
80.6
69.7
77.5
0 20 40 60 80 100
Top-10
Top-20
Capital, % Premiums, % Assets, %
31%
6%
10%11%
15%
27%
Life insurance
Corporate propertyinsurancePrivate medicalinsuranceMotor car insurance
Compulsory motor TPLinsuranceOther
FINANCIAL SECTOR OVERVIEW
COMMODITIESUrals futures trading launched to set a price benchmark for Russian export oil
50
Deliverable SPIMEX Urals Crude Futures contract is a new oil pricingmechanism allowing a direct quotation of exported Russian oil withoutreference to other crude oil grades traded on global energy markets
Transparent pricing process is based on exchange-traded futures contractsreflecting the supply-and-demand equilibrium reached on the back of a largenumber of trades concluded on the exchange by a wide range of marketparticipants and setting an arm’s length price for the relevant commodity
Deliverable SPIMEX Urals Crude Futures contract trading was launched on 29November 2016
Access to the SPIMEX futures contract trades is granted to Russian andforeign legal entities as well as to Russian individual entrepreneurs. Only legalentities (both Russian residents and non-residents) are able to conductphysical deliveries of crude oil
The SPIMEX Urals Crude Futures contract is settled by physical delivery uponexpiration. Such a futures contract has a direct link with the crude oil spotmarket and prevents price manipulation. Physical delivery of crude oil underthe contract is effected against positions opened as of the relevant contractexpiration date
FINANCIAL SECTOR OVERVIEW
MICROFINANCEMicrofinance is a vital part of financial system complementing banks to provide better financial inclusion
51
Microfinance organizations(MFOs)
Consumer credit cooperatives
Credit Housing communities
Pawnbrokers
Agricultural credit cooperatives
Microfinance institutions (MFIs) provide financial services for
customers with no access to banking products, service regions
with an insufficient bank presence, offer financial products missing
from bank product lines, boost financial awareness and help
clients build their credit histories.
CBR keeps a state register of MFIs and supervises MFIs directly
and via SROs. Currently there are about 15 600 MFI companies.
Roughly 25% of the entire MFO microloan portfolio are microloansto small to medium enterprises (bearing 8% interest rate thanks tostate support via MFOs).
Payday Loans, i.e. small, short-term unsecured loans (up to RUB30k for 30 days) at high rates, are not a development priority andaccount for some 20% of the entire MFO microloan portfolio.
MFIs
FINANCIAL SECTOR OVERVIEW
FINTECH (1)Russia provides a favorable environment for FinTech development
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Key areas of development
1. Legal regulation of FinTech, including protection of consumer rights and security of personal data
2. Development of digital technologies in the financial market and development of digital infrastructure
3. Transition to electronic interaction between the Bank of Russia, government, market participants and their clients
4. “Regulatory Sandbox” for experimentation with innovative financial technologies, products and services
5. Cooperation within the Eurasian Economic Union and development of single payment area for member states
6. Ensuring technological safety and sustainability in FinTech implementation
7. Development of human resources in the financial market
Facilitate the competition in the financial market
Enhance accessibility, quality and range of financial services
Lower risks and costs in the financial market
Advance the level of competitiveness of Russian technologies
Goals of the Bank of Russia as a high-tech regulator
FINANCIAL SECTOR OVERVIEW
FINTECH (2)Russia provides a favorable environment for FinTech development
53
Implementation of new technological
solutions for the development of the
Russian financial market
Promotion of digitalization of the
Russian economy
Digital identification
Distributed ledger technology
Faster payment system
Open API
Big Data
Main goals Main activities (2017-2018)
Established on 28 December 2016 by the Bank of Russia
with participation of the largest financial institutions
FINANCIAL SECTOR OVERVIEW
MARKETPLACEShaping future of financial services experience in Russia
54
New system for online sales of financial products
Aimed at replacing traditional sales channels with websites and smartphone apps which will enable customers to compare multiple financial product offers
CBR arranges the regulatory environment necessary for the project
CustomersEqual access to financial market
Competition
Development of competitive environment
and financial services optimization
TechnologiesOpen API and fast payments system
FINANCIAL SECTOR OVERVIEW
PAYMENT INFRASTRUCTURE (1)Bank of Russia Payment System
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Money transfer services are provided to:
all credit institutions (financial market infrastructure included)
Russia’s Federal Treasury and its agencies
other Bank of Russia clients
Average daily figures: 6.4 mln payments, RUB 6.9 tn
84% of funds are transferred via the real-time service
New liquidity management tools, future value date settlement functionality, cash-pooling services for Federal Treasury and multibranch banks introduced
Transfer timeframe is adapted to Russia’s 11 time zones - system operates from 1 a.m.to 9 p.m., Moscow time.
The Faster Payments System (FPS), launched on 28 January 2019, is set to enableinstant C2C interbank transfers 24/7/365 using mobile phone number. At the nextstage – C2B (customer–to-business) and C2G (customer-to-government) payments tobe included
FINANCIAL SECTOR OVERVIEW
PAYMENT INFRASTRUCTURE (2)Advancing supervision and oversight to ensure stable development of the payment infrastructure
56
Supervision of the paymentinfrastructure: monitoring organisations’compliance with the Russian law. Appliesboth to banking and non-bankinginstitutions providing paymentinfrastructure and payment services
Oversight of the payment infrastructure:improving institutions’ operationsfollowing the Bank of Russiarecommendations based uponinternational best practices
Bank of Russia international cooperationin supervision and oversight of thepayment infrastructure
36 payment systems and more than 400 institutions supervised within the National Payment System (NPS)
Objects supervised for compliance with CPMI/IOSCO Principles for Financial Market Infrastructure (PFMI): 2
systemically important payment systems, 4 socially important payment systems
NPS supervision is risk-oriented. Proportionate remote supervision approach is being introduced to the NPS
Figures for early 2019 :
High PFMI compliance ratings. NPS operators implement approved action plans based on the Bank
of Russia recommendations
FINANCIAL SECTOR OVERVIEW
NATIONAL PAYMENT CARDS SYSTEMSetting the standards for the payment industry to provide convenient and stable services
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Russian national payment system “Mir” was created on 23 July 2014 Operator of Mir Card Payment System is National Card Payment System Joint-Stock
Company, 100% of its shares belong to the Bank of Russia More than 53 mln “Mir” payment cards were issued by year end 2018 in Russia Co-badging projects with international payment systems: Maestro, JCB, AmEx and
UnionPay Support of mobile payment service Samsung Pay Mobile payments service MirPay is launched PayPass system has been successfully implemented
Payment system “Mir” launched a loyalty program which allows card holders to receivecashback
“Mir” payment cards are accepted in the Republic of Armenia, Kyrgyz Republic, as wellas in the infrastructure of VTB Bank in the Republic of Kazakhstan and the Republic ofBelarus
FINANCIAL SECTOR OVERVIEW
CONSUMER PROTECTIONFinancial consumer and investor protection as one of priorities for further financial market development
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KEY FINANCIAL CONSUMER PROTECTION WORKSTREAMS
Consumer and investor complaints handling
Conduct supervisionmodel
Setting requirements for financial organizations in order
to improve consumer and investor protection
Dispute resolution (ombudsman)
Financial awareness improvement
Disclosure requirements for consumers and
investors
Disclosure requirements for information on risks
Differentiation of consumer protection
requirements
FINANCIAL SECTOR OVERVIEW
FINANCIAL INCLUSIONStrong international background helps to promote financial inclusion
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ALLIANCE FOR
FINANCIAL INCLUSION (AFI)
‒ The global knowledge exchange network empoweringpolicymakers to increase access to quality financialservices for the less well-off communities andhouseholds
‒ The Bank of Russia became a member of AFI inFebruary 2014
‒ In September 2014 the Bank of Russia joined the MayaDeclaration setting up the priorities for AFI memberson financial inclusion
‒ In September 2015 the Bank of Russia joined theMaputo Accord to improve funding accessibility forSMEs
‒ The Bank of Russia and AFI co-hosted the ‘Financialinclusion and shadow banking: innovation andproportional regulation for balanced growth’conference in November 2015
‒ In June 2016 the Bank of Russia hosted the AFI GSPWGmeeting.
‒ CBR hosted the 2018 AFI Global Policy Forum
‒ Improving financial inclusion for people and SMEs is one of financial marketdevelopment priorities for 2016-2018
‒ The Bank of Russia annually publishes financial inclusion indicators and theReport on Financial Inclusion in Russia (with supply-side and demand-sidedata starting from 2015)
‒ The technical note on financial inclusion was prepared in the context of ajoint WB / IMF FSAP mission in Russia during February-March 2016; thenote was published in May 2016
‒ Early in 2018 the Bank of Russia launched the Financial Inclusion Strategy inRussia for the period of 2018-2020
Financial Inclusion Promotion by the Bank of Russia
G20 GLOBAL PARTNERSHIP FOR FINANCIAL
INCLUSION (GPFI)‒ Acts as an inclusive platform for G20 countries, non-members and other parties for
knowledge and experience sharing, policy advocacy and coordination in promotingfinancial inclusion
‒ Russia is an original GPFI member since November 2010
‒ Endorsed the ‘original’ FIAP in 2010 and the ‘updated’ FIAP in 2014 and 2017
‒ G20 – World Bank – OECD conference on empowering consumers of financialproducts and services was hosted in Moscow in June 2013
‒ The third annual GPFI Forum was held in St. Petersburg in 2013
FINANCIAL SECTOR OVERVIEW
AML/CFTBank of Russia maintains AML/CFT supervision of credit and non-credit financial institutions
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Key measures taken in 2008-2013:
Enhancing corporate transparency by introducing beneficial ownership requirements to the AML/CFT Law
Prohibiting credit institutions from opening and maintaining anonymous accounts or accounts in fictitious names
Addressing certain shortcomings in the criminalization of terrorist financing
Amending legislation to prevent criminals from becoming major shareholders in financial institutions
Strengthening instruments to freeze terrorist assets domestically or on request of other countries
Abolishing the threshold which decriminalized self-laundering of amounts lower than RUB 6 mln and which wasnot in compliance with the FATF Recommendations
2008The FATF placed Russian Federation in the regular follow-up process
2013The FATF recognized that Russia
could be removed from the regular follow-up process
Russian AML/CFT law is based on International Standards on Combating Money Laundering (FATF Recommendations)
2018 – 20194th round of mutual evaluation, joint
FATF/MONEYVAL/EAG evaluation of Russia
FINANCIAL SECTOR OVERVIEW
CYBERSECURITYKey initiatives in information security and cybersecurity
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Key avenues of cooperation in the sphere of information security
Establishing institutional and technicalframework for dynamic cooperation betweenthe common financial market regulators andparticipants, building upon the Financial SectorComputer Emergency Response Team(FinCERT) of the Bank of Russia
Enabling trusted electronic operations in theincreasingly digitalised common financialmarket
Formulating unified standardised approachesto information security, cyber resilience andsupervising related risks
Policy coordination and unifying themechanisms of strong customer authenticationfor financial transactions and money transfers
Countering international and cross-border crime
Compiling a general register of most typical cyber threats and computer
attack methods
Addressing the rise in money withdrawals via illegal cross-border
transactions
Combatting fraud in financial e-services provided via websites registered in foreign DNS zones
FINANCIAL SECTOR OVERVIEW
INVESTOR CONTACTS AND REGULAR MEETINGS SCHEDULE FOR 2019
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International Cooperation DepartmentTel.: +7 (495) 771-90-68
Email: [email protected]: cbr.ru/eng/today/irp/
July 19-26 Quiet period
July 26 Board of Directors meeting on monetary policy
August 30 –
September 6
Quiet period
September 6 Board of Directors meeting on monetary policy
Release of the Monetary Policy Report
September 11 Conference call with institutional investors
October 11-13* Ad-hoc meetings with investors on the sidelines of
the IMF/WB meetings
October 18-25 Quiet period
October 25 Board of Directors meeting on monetary policy
December 6-13 Quiet period
December 13 Board of Directors meeting on monetary policy
Release of the Monetary Policy Report
December 18 Conference call with institutional investors
February 1-8 Quiet period
February 8 Board of Directors meeting on monetary policy
March 15-22 Quiet period
March 22Board of Directors meeting on monetary policy
Release of the Monetary Policy Report
March 26 Conference call with institutional investors
April 10-12*Ad-hoc meetings with investors on the sidelines of the
IMF/WB meetings
April 19-26 Quiet period
April 26 Board of Directors meeting on monetary policy
June 6-8 Saint Petersburg International Economic Forum
June 7-14 Quiet period
June 14Board of Directors meeting on monetary policy
Release of the Monetary Policy Report
June 19 Conference call with institutional investors
*tbc