Prospects of development of banks with foreign capital in the Russian Federation

Banks with foreign capital (with foreign participation) are an important part of the Russian banking system. In this case the operation of foreign banks in Russia has both positive and negative aspects.

On the one hand, this leads to an increase to increase capitalization in the banking sector number of investments in the banking sector and the growth of capitalization and investment growth in the real sector of the economy, because foreign investors prefer to carry out this process via foreign banks. Foreign banks increase the competition in the Russian market, providing legal entities and individuals wide range of banking products and services of high quality. On the other hand, foreign banks are pursuing their own goals, which do not always coincide with national development strategies. [1]

Active expansion of foreign banks in the Russian financial market began in the mid 2000-ies, which was accompanied by the inflow of foreign capital in the domestic banking sector against the background of increasing the overall investment attractiveness of the country.

Taking into account the main trends of banking sector development we can distinguish three main stages of expansion of foreign capital in the domestic banking system:

• -    The first phase from 1993 to early 2000-ies;

• -    Second phase from 2003 to 2009;

• -    The third stage from 2010 to the present.

Each stage had its own characteristics in terms of penetration strategies and market development. "The first stage begins after the collapse of the Soviet Union and the beginning of the market reforms. This stage can be described as the liberalization of the economy.

The second stage dates from the years 2003-2009 and is characterized as a period of stabilization of the Russian economy. In these years were significantly relaxed the requirements for credit organizations with foreign equity participation, and was also observed to increase investment attractiveness of Russia on the background of political stabilization. All this contributed to the expansion of activities of foreign banks: increased the number of operating credit institutions with foreign participation, and the increased share of foreign capital in the banking sector.

Peak expansion of foreign banks in Russia peaked in 2008, when the share of the total equity capital of foreign banks accounted for 28.5%. The main strategy of penetration of the banking market in this period was the acquisition of existing Russian commercial banks. The third stage starts from 2011, is characterized as a period of fundamental changes in the strategies of business by foreign credit institutions in Russia.

In the period from 2011 to 2012, the growth rate of investments of nonresidents in the Charter capital of Russian credit organisations was much higher than the growth in the number of operating banks with their participation. In addition, an additional incentive to increase the number of banks with foreign participation became Russia's accession to the world trade organization. [2] But since 2012 there has been a decline in the rate of growth of investments of nonresidents in the authorized capital of operating credit institutions. In addition, the decrease in growth rate of investments of non-residents due to the consequences of the global financial crisis.

In accordance with the data of the RF Central Bank as of 01.01. 2016 the number of commercial banks in Russia, compared to 01.01.2012 decreased by 25%, or 245 of the banks. At the beginning of 2016, with the share of nonresidents works 225 credit institutions. For a number of Russian companies and individuals in cooperation with the "daughters" of foreign credit organizations is of great importance, due to the large international banks Russian clients, until recently, large amounts of funding in the short term, while the majority of

Russian banks are limited in the amount of capital and regulations. Foreign banks as subsidiaries use stricter standards of risk management and compliance that enable you to work with high-quality borrowers and customers with access to modern technology, management, Treasury operations, approaches and techniques of leading (parent) banks. [3]

One of the main problems faced by many foreign banks is the use of a universal model when entering the Russian market and, as a consequence, the lack of understanding and respect for local conditions. Experience has shown "that those who met with difficulties in the Russian market, in a hurry to leave as soon as possible to minimize losses. Largely because of this foreign subsidiaries is mainly oriented to large cities, where customer behavior is more universal.

The scale of the activities undertaken in Russia all credit institutions in the preparation of various kinds of rankings are divided into large, medium and small banks. A number of efficient banks with foreign capital identified by the experts of major credit organizations. Their lineup consisted of: UniCredit Bank, Raiffeisenbank, home Credit and Finance Bank, Citibank. [4]

It should be noted that the new wording of article 18 of the Federal law dated 2 December 1990 No. 395-1 "On banks and banking activity", introduced in 2015, [5] and establishes the new rules of activity of banks with foreign capital. Quota for participation of foreign capital in the Russian banking system (the ratio of the total foreign capital total capital of the domestic banks registered in Russia) is 50%. If the limit is reached, the Bank of Russia will cease to issue licenses to new banks with foreign capital and was already prohibit banks to increase the share of such investments.

Thus the quota does not apply:

• -    foreign legal entities under the control of Russian banks;

• -    in the Russian subsidiary banks of foreign credit organizations;

• -    the investments that were made prior to December 31, 2006, inclusive;

• -    investments in the capital of credit organizations, of which more than 50% owned by the Russian state authorities, the Bank of Russia and the state corporations that were privatized after the August 22, 2012

Thus, even in modern conditions of prolonged economic recession and the imposition of economic sanctions against our country, the Central Bank pursues a balanced policy aimed at creating the necessary conditions for the effective functioning of banks with foreign capital.