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Banking Reform in Russia: William Tompson Problems and Prospects OECD Economics Department Working Papers No. 410 Banking Reform in Russia: William Tompson Problems and Prospects https://dx.doi.org/10.1787/346560635401 Unclassified ECO/WKP(2004)33 Organisation de Coopération et de Développement Economiques Organisation for Economic Co-operation and Development 09-Nov-2004 ___________________________________________________________________________________________ _____________ English - Or. English ECONOMICS DEPARTMENT Unclassified ECO/WKP(2004)33 BANKING REFORM IN RUSSIA: PROBLEMS AND PROSPECTS ECONOMICS DEPARTMENT WORKING PAPERS No. 410 by William Tompson All Economics Department Working Papers are now available through OECD's Internet Web at http://www.oecd.org/eco English - Or. English JT00173456 Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original format ECO/WKP(2004)33 ABSTRACT/RÉSUMÉ Banking Reform in Russia: Problems and Prospects This paper examines the state of the Russian banking sector in 2004 and assesses the most important reform initiatives of the last two years, including deposit insurance legislation, a major reform of the framework for prudential supervision, steps to increase transparency in the sector, and measures to facilitate the development of specific banking activities. The overall conclusion that emerges from this analysis is that the Russian authorities’ approach to banking reform is to be commended. The design of the reform strategy reflects an awareness of the need for a ‘good fit’ between its major elements, and the main lines of the reform address some of the principal problems of the sector. The major lacuna in the Russian bank reform strategy concerns the future of state-owned banks. Despite a long-standing official commitment to reducing the role of the state – and of the Bank of Russia in particular – in the ownership of credit institutions, there is still a need for a much more clearly defined policy in this area. The real test of Russian banking reform efforts, however, will be in implementation. The reforms challenge numerous vested interests and their successful realisation will require considerable political will as well as the development of regulatory capacities of a very high order. JEL Classification: E58, G21, G28, O52, P29 Keywords: Russia; economy; banking; deposit insurance; prudential supervision; accounting; international financial reporting standards; transparency; corruption; state ownership; Sberbank. ***** La Réforme du Secteur Bancaire en Russie - Les Enjeux et les Perspectives Cet article examine la situation du secteur bancaire russe en 2004 et évalue les principales initiatives de réforme prises au cours des deux dernières années – la législation sur l’assurance des dépôts, une vaste refonte du cadre de la surveillance prudentielle, des mesures pour renforcer la transparence du secteur, et l’adoption de dispositions visant à faciliter le développement de certaines activités bancaires. De façon générale, il ressort de cette analyse que l’on peut saluer l’approche suivie par les autorités russes en matière de réforme bancaire. La conception de la stratégie de réforme témoigne d’une sensibilité à la nécessité de trouver une «bonne harmonie» entre ces principales composantes, et les grands axes de la réforme s’attaquent à certains des grands problèmes du secteur. La plus grande lacune de la stratégie russe pour la réforme du secteur bancaire concerne l’avenir des banques publiques. En dépit d’un engagement officiel de longue date à réduire le rôle de l’État – et particulièrement celui de la Banque de Russie – comme propriétaire des établissements de crédit, il faut formuler une politique beaucoup plus claire en ce domaine. Cependant, c’est au niveau de la mise en œuvre que l’on pourra véritablement juger les efforts des autorités russes concernant la réforme du secteur bancaire. Les mesures prévues vont se heurter à de nombreux intérêts acquis et elles ne pourront être menées à bien qu’au prix d’une volonté politique résolue et de la mise en place de capacités de réglementation à très haut niveau. JEL classification: E58, G21, G28, O52, P29 Mots-clés : Russie ; économie ; activités bancaires ; assurance de dépôts ; surveillance prudentielle ; comptabilité ; normes comptables internationales ; transparence ; corruption ; entreprises d’État ; Sberbank. Copyright OECD 2004 Applications for permission to reproduce or translate all, or part of, this material should be made to: Head of Publications Service, OECD, 2 rue André Pascal, 75775 Paris Cédex 16, France 2 ECO/WKP(2004)33 TABLE OF CONTENTS BANKING REFORM IN RUSSIA: PROBLEMS AND PROSPECTS ........................................................ 4 William Tompson........................................................................................................................................ 4 The Russian banking sector......................................................................................................................... 5 Size and structure..................................................................................................................................... 5 Post-crisis recovery.................................................................................................................................. 9 The environment of commercial banking ................................................................................................. 12 Banking reform initiatives......................................................................................................................... 14 Deposit insurance .................................................................................................................................. 14 Substance-over-form regulation ............................................................................................................ 16 Information and transparency................................................................................................................ 18 ‘Developmental’ reforms .......................................................................................................................... 20 The future of state-owned banks ............................................................................................................... 23 Conclusion................................................................................................................................................. 25 ANNEX 1. RUSSIA’S DEPOSIT INSURANCE LAW .............................................................................. 26 Legislative framework............................................................................................................................... 26 Coverage ................................................................................................................................................... 27 Financing................................................................................................................................................... 28 Administration........................................................................................................................................... 29 The status of Sberbank .............................................................................................................................. 31 ANNEX 2. THE NEW BANK SUPERVISION FRAMEWORK ............................................................... 32 Compliance definitions and reporting regularity....................................................................................... 32 Syndicated loans........................................................................................................................................ 33 Risk weights.............................................................................................................................................. 34 Contingent and derivative instruments...................................................................................................... 34 Prudential ratios......................................................................................................................................... 35 Conclusion................................................................................................................................................. 36 ANNEX 3. THE TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS....................... 37 Boxes Box 1. Financial market development....................................................................................................... 22 3 ECO/WKP(2004)33 BANKING REFORM IN RUSSIA: PROBLEMS AND PROSPECTS William Tompson1 The relationship between financial-sector development and economic growth has long been the subject of much debate. However, a growing body of recent empirical work strongly supports the proposition that financial development contributes to long-term growth.2 Moreover, there is evidence to suggest that the intermediation-growth link is stronger for less financially developed countries, such as Russia. There are thus good reasons to believe that the development of the banking system in particular will be critical to sustaining the growth of investment and output in Russia over the longer term. Given the limits on its current ability to attract foreign investment and on the capacity of firms outside the resource sectors to finance investment from retained earnings, Russia’s growth will depend to a great extent on
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