BANKING SYSTEM
OF RUSSIA
Lecturer – Oleg Deev
oleg@mail.muni.cz
Contents
• USSR banking system
• Banking system 1992-1998
• The 1998 banking crisis
• Banking system – 2000s
• Characteristic of recent banking system’s developments
• Conditions for further developments of banking system
USSR banking system
• Gosbank controlled all banks
• Vneshtorgbank - foreign currency, debt, and trade
• Sberbank - the state savings bank
• Stroibank - state enterprise credits
• The system channeled funds to state enterprises
according to government decisions and, thereby,
controlled enterprises, financed government debt,
and foreign trade
Banking system at the first phase of
economic transition
• Two-tier banking system:
• Central Bank of Russia (CBR or Bank of Russia)
• Commercial banks
• Emerged without any solid foundation
• Low capital requirements for a license
• Almost no bank supervision
• Large quantity of institutions
• Gosbank Central Bank of Russia
• Vneshtorgbank Vneshekomombank
• Sberbank (the only institution of efficient savings mobilization)
• Stroibank specialized banks by industry
• Numerous additional small banks
Number of banks
There are still many banks, most of which are very small
Performance of banks – 1992-1995
• Inexpensive credits from the Bank of Russia
• Large portfolio of non-performing loans – as a result of money
lending based on political considerations rather than on credit
worthiness
• Banks promised depositors extremely high interest rates,
hoping to pay from earnings on loans, but paid it from fresh
deposit – financial pyramid schemes
• Bank earned profits from “current accounts” (with almost no
interest rate) of former state enterprises and state agencies
• Banks exchanged rubles for dollars, lent dollars to those with
licenses to export commodities – these short-termed loans
were extremely profitable
• Foreign banks were kept out till 1995
Performance of banks – 1995-1998
• Inflationary profits disappeared banking crisis?
• Frightened government chose to subsidize banks
• Government bonds are the largest source of income –
40% of all receipts
• Interest payment received on loans to the real sector
made up about 35% of income
• Speculation on foreign currency
• Forward obligations to hedge the currency risks
• Some regulatory tightening
Russian banks with the largest forward
positions
The banking crisis - 1998
• No huge losses on securities due to insider information -
13% of net charges to capital of banks
• Immense losses on loans, many of which have never
been returned - $64.3 billion or 34% of net charges to
capital of banks
• Foreign exchange losses – 28% of net charges to capital
of banks
Positive changes after the 1998 crisis
• Rebuilding of customer confidence (including private
investors)
• Restructuring of several large banks
• Maintenance of technological and material base for
banking business
• New shareholders’ acquisitions
• Stabilization of banking proceeds
• Write off of Non performing loans and formation of loan
loss provisions
• Formation of five clusters of commercial banks, besides
Sberbank
Performance of banks – since 1998
Year Number
of banks
The average
volume of
assets per
bank, mln RUB
The average
volume of the
own capital per
bank, mln RUB
The average
volume of the
loans per
bank, mln RUB
1998 1641 418 76 127
1999 1476 643 72 203
2000 1349 1075 142 336
2001 1311 1647 223 590
2002 1319 2186 342 909
2003 1329 2875 438 1216
Key indicators of the banking system
Year Assets /
GDP, %
Capital /
GDP, %
Loans /
GDP, %
Deposits /
GDP, %
Spread in
interest rates,
% per annum
1998 36,07 4,04 11,41 16,36 24,74
1999 30,07 3,98 9,40 14,62 26,03
2000 29,56 4,01 10,59 15,12 17,93
2001 31,89 4,99 13,26 16,47 13,06
2002 35,17 5,36 14,87 18,48 10,75
2003 39,14 5,85 17,06 20,29 8,63
Non-performing loans and Reserves for
credit risks
0
2
4
6
8
10
12
14
16
18
1998 1999 2000 2001 2002 2003 2004
Non-performing loans Reserves for credit risks
Commercial bank clusters
• Sberbank
• Other state-owned banks
• Banks of energy and raw material sectors
• Banks of other (non-energy) industry sectors
• Foreign banks and joint ventures
• Other (small and middle-sized) banks
Performance of banks – 2000s
0
5000
10000
15000
20000
25000
30000
35000
2005 2006 2007 2008 2009
Capital Lending portfolio Assets
bln.
rubles
The largest banks
Bank’s name % of total banking
assets
Ownership
Sberbank 23,7 State
VTB 8,0 State
Gazprom 4,7 State
Rosselhozbank 2,9 State
Bank of Moscow 2,8 State
Alfa-Bank 2,5 Private domestic
UniCredit Bank 2,1 Foreign
Raiffeisenbank 2,1 Foreign
VTB-24 2,0 State
Rosbank 1,7 Foreign
State-dominated banking sector
• Among largest banks only two are private ones, three foreign-controlled,
five - state-controlled (including big
three)
• During the financial crisis 2008-2009:
• Government’s market share of state-controlled banks has
topped ½
• State-controlled banks used as liquidity channel (esp. Sberbank,
Rosselkhozbank)
• Private banks faced funding problems, resulted in foreigncontrolled
banks’ sale
• Little possibility to turn back towards the privatization of
banks in short-to-medium term
The size of the banking system
0
5
10
15
20
25
30
35
40
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Money and Quasi-Money (M2) as % of GDP
Conditions for further development
• The external factors
• The oil price levels
• The level of interest rates on capital markets
• The demand on the energy resources
• Russia’s international investment ratings
• The internal (domestic) factors
• Macroeconomic stability
• The ruble rate appreciation toward the main world currencies
• Money supply
• The availability of the financial instruments on the national market