The current state of the Russian banking system: main problems and prospects of development

The banking system is a key element of the monetary system of any state and is also an important factor in the development of its economy. The prospects for sustainable development of the country, namely, financial stability, rate of inflation reduction, as well as success in overcoming of economic crisis, mostly depend on its effective functioning.

After the crises of 1998 and 2008 the problems of the Russian banking system functioning have acquired a special significance, because the further successful implementation of economic reforms is impossible without a stable and efficient banking system.

The special role of the banking system at the present stage of development is to ensure sustainable economic growth, to increase the capacity of enterprises to attract financial resources, and to preserve and increase personal savings of citizens. We can name some of the main goals of the Russian banking system:

• -    increasing the general economic efficiency of functions and strengthening its role in the economy;

• -    increase of competitiveness;

• -    increase of protection of bank creditors interests;

• -    strengthening of confidence in the banking system;

• -    the prevention of the use of banks as part of unfair commercial activities.

The banking system includes the Bank of Russia, credit institutions, as well as branches and representative offices of foreign banks. Currently there is an active reduction in the number of Russian banks that is shown in Table 1.

Macroeconomic indicators of the banking sector for 2013-20171

Table 1

Index	01.01.13	01.01.14	01.01.15	01.01.16	01.01.17
Total assets (liabilities) of the banking sector (billion rubles)	49509,6	57423,1	77653,0	82999,7	80063,3
In % of GDP	74,0	80,9	98,0	99,7	93,2
Own means of the banking sector, billion rubles.	6112,9	7064,3	7928,4	9008,6	9387,1
In % of GDP	9,1	9,9	10,0	10,8	10,9
in% to assets of the banking sector	12,3	12,3	10,2	10,9	11,7
Loans and other placed funds provided to non-financial organizations and individuals, including overdue debt billion rubles. In % of GDP	27708,5	32456,3	40865,5	43985,2	40938,6
in% to assets of the banking sector	41,4	45,7	51,6	52,8	47,7
	56,0	56,5	52,6	53,0	51,1
Credits of banks in investments of	806,3	1003,6	1098,7	849,8	-
organizations of all forms of ownership in fixed assets (billion rubles) in% to investments of organizations of all forms of ownership in fixed assets	8,4	10,0	10,6	8,1	-
Securities purchased by credit institutions (billion rubles.)	7064,9	7822,3	9724,0	11777,4	11450,1
In % of GDP	10,5	11,0	12,3	14,2	13,3
in% to assets of the banking sector	14,2	13,6	12,5	14,2	14,3
Deposits of individuals (billion rubles.)	14251,0	16957,5	18552,7	23219,1	24200,3
In % of GDP	21,3	23,9	23,4	27,9	28,2
in% to liabilities of the banking sector	28,8	29,5	23,9	28,0	30,2
in% to the monetary incomes of the population	35,7	38,0	38,7	43,4	44,7
Deposits and funds on accounts of nonfinancial and financial organizations (billion rubles)	14565,1	16900,5	23418,7	27064,2	24321,6
In % of GDP	21,8	23,8	29,6	32,5	28,3

1 The official site of the Central Bank of Russia. -URL:

in% to liabilities of the banking sector

29,4

29,4

30,2

32,6

30,4

* Compiled by:

As it can be seen from the table 1 the number of banks decreases every year. One of the main reasons of the reduction in the number of banks is an increase in the minimum amount of the authorized capital. According to Article 11 of the Federal Law "On Banks and Banking Activities", the minimum amount of the authorized capital of a newly registered bank as of the date of filing an application for state registration and issuance of a license to conduct banking operations is set at 300 million rubles, for example, in 2010 it was 90 million rubles, and in 2012 – 180 million rubles.

On the basis of the data of macroeconomic indicators, we can state that the banking sector developed from 01.01.13 to 01.01.17. In terms of growth in total assets, equity, as well as loans, securities and retail deposits, the Russian banking system is one of the fastest growing in the world.

In the Russian Federation all credit institutions of the modern banking system are dispersed between two levels. The first one is occupied by the Central Bank, and Commercial Banks are at the second level, which on the 1st January 2017 were numbered about 575. In comparison, the number of Commercial Banks in 2012 was more than 900 (Table 2). Over the past few years there was a trend towards a reduction in the total number of credit institutions. In 2016 97 licenses were withdrawn from banks, partly in connection with reorganization.

Table 2

Indicators of development of the Russian banking system (at the beginning of the year)2

Index	2012	2013	2014	2015	2016	2017
Registered       Credit Organizations	1112	1094	1071	1049	1021	975
Current          Credit Organizations / Banks	1051	1024	987	834	681	575

* Compiled by:

The question of revocation of license remains controversial. "The main reasons are: money legalization and laundering, lending to own business, low-

• ² Information on the number of operating credit organizations and their branches in the territorial context. - URL: http://www.cbr.ru/statistics/

quality assets, as well as a low amount of own funds. In general, the policy of reducing the number of credit institutions, including their branches, has a dual nature. On the one hand, the stability of the banking system is increasing, and on the other hand, the competitiveness of the banking system is decreasing. "3

Note that the modern banking sector of Russia lags behind in many respects from foreign banking systems.

According to numerous economic studies, the main problems of development of the banking sector are the following:

• -    low capitalization;

• -    locality in the possibilities of the banking system in the sphere of lending to the country economy;

• -    low stability at the macroeconomic level;

• -    instability of the banking system of the Russian Federation;

• -    problems in the structure of the banking system, etc.

Let’s study the key problems of the banking system and the ways of eliminating them in the Russian Federation.

The main problem of the banks of our country is a huge competition with other banks that have the largest share of foreign capital. To cope with this problem, the Russian state needs to influence the formation of new banks, or to improve existing ones in order to gain benefits for our country. It is also necessary to impose restrictions on the activities of foreign competitors hindering the development of the Russian banking system by dictating their rules not in our favor.

The second important problem of domestic banks deals with various banking risks. These include credit risks, which cause a decline in solvency, as borrowers can not cope with the large loan rate and the funds are levied in the form of property that is often problematic, because it takes too much time.

A common problem for Russian banks is the low capitalization of the banking system. To solve it, it’s necessary sufficient attention from the state. It implies carrying out reforms in the field of bank management or modification of existing ones. Legislative regulation needs to focus on the simplified system of issuing securities by the bank, to provide all the benefits in the taxable sector and not to release a share of profits in order to increase its own banking capital. As the deposits of legal entities and individuals are quite important sources of bank money, it is necessary to carry out the reform of conditions in this situation, making them the most profitable for both parties.4

The final problem is short-term financial means. To solve it, it is necessary to focus on refinancing, namely on the key rate, so it is necessary to reduce interest on loans that are paid to the Central Bank by commercial banks for loans granted to them.

At present the key rate in Russia is equal to 8, 5%.

Having assessed the current problems of banks and the banking system as a whole, it can be concluded that most of them are formed under the influence of threats from the outside, and the rest ones are related to internal violations in the country, for example, to imperfect legislation or to managerial errors in banking.

In our opinion, in connection with the abovementioned problems, further directions in the development of the banking system should be:

• -    simplification and reduction in the cost of reorganization procedures;

• -    increase of transparency and openness of the banking system;

• -    creation of conditions for open and transparent activity of credit institutions;

• -    increase the stability of the Russian banking system by introducing Basel 3 standards;

• -    creation of the banking infrastructure in order to reduce the risks of banking activities at the present stage;

• -    creation of optimal conditions for the development of banking services,

etc.

In conclusion, let’s note that today’s main task of the Bank of Russia is to ensure sustainable economic development of our country, maintain the optimal level of economic and social stability of society.