DOI:10.21686/tmsfm/3.2017 TRENDS OF THE PLEKHANOV RUSSIAN UNIVERSITY OF MONETARY SYSTEM AND ECONOMICS FINANCIAL MARKETS Working paper №3 2017 Content: Non-residents Hold onto the Capitals of Russian The Bank of Russia 2 Banks Is Similar to That of Brazil Non-residents have decreased their of this type currently operate in Rus- Too Big To Fail or 3 participation interest in the capital of sia. On top of that, 45 credit organiza- Systemic Banks Got existing Russian banks. At the begin- tions have an authorized capital ex- Under Rehabilitation ning of 2014, the owners of 251 ceeding 1 trillion rubles, which auto- Market Manipulation 4 credit institutions registered in Russia matically implies the universalization is Detected More were non-residents. However, by mid of their operations. Often than the Mis- -2017 the number of such organiza- Table 4 shows the key indicators use of Insider Infor- tions was reduced to 170. of 10-top largest commercial banks - mation Meanwhile, in spite of the interna- fully owned by non-residents - in the The Value of Com- 5 tional sanctions and risks involved in Russian Federation in terms of the panies Reflects the running the banking business in Rus- registered authorized capital. The as- Structure of the sia, foreigners are not rushing to leave sets of this group exceed 2.7 trillion Economy the banking sector altogether. More- rubles, while the total capital is about Cash Turnover Ex- 6 over, the total authorized capital of 450 billion rubles. periments operating credit institutions, in which It is characteristic that in contrast non-residents are present, has grown to most Russian banks, those under The Task of the 7 to 2.5 trillion rubles. (see Fig. 1). full control of foreigners, conduct a Population is to Be- Particularly valuable for non- generally more balanced credit policy lieve in 4% Inflation residents are banks with 100% for- with fewer risks, which positively af- Regarding the Re- 7 eign capital participation - 67 banks fects their overall financial stability. plenishment of Inter- national Reserves to 300 3 000 500 Billion Dollars 250 2 500 Aggregate authorized capital 200 2 000 of operating credit 150 1 500 institutions, bln rub 100 1 000 Number of operating credit 50 500 institutions with the 0 0 participation of non-residents Fig.1 Indicators characterizing the participation of non-residents in the banking system of the Russian Federation and its total authorized capital. Page 2 Trends of the Monetary System and Financial Markets The Bank of Russia Is Similar to That of Brazil The rapid decline in inflation in Bra- zil forced the Central bank of the coun- 15 try to reduce aggressively the official 14 interest rate (see Fig. 2). It is the first 13 time in the 21st century, when such low 12 Brasil inflation can be observed in this Latin 11 10 American country. 9 The synchronization of the dynamics 8 Russia of inflation indicators in Brazil and 7 Russia can be noted (see Fig. 3). Infla- 6 tion below 4 per cent has not previously 5 been recorded in our country either. Consequently, the domestic regulator will continue its policy of reducing its 01.09.2016 01.10.2016 01.11.2016 01.12.2016 01.01.2017 01.02.2017 01.03.2017 01.04.2017 01.05.2017 01.06.2017 01.07.2017 01.08.2017 01.09.2017 01.10.2017 01.11.2017 01.12.2017 key rate. 01.08.2016 Over the past twelve months, the Fig.2 Official interest rates of the Bank of Russia and the Bank of Brazil. Bank of Brazil has decreased the offi- cial interest rate by 6 percentage points, 18 whilst the Bank of Russia - only by 1 16 percentage point. 14 With the current official interest 12 rates together with the inflation below 10 the target level, the actual interest rates 8 6 - adjusted for inflation - have increased 4 significantly in both countries (see Fig. 2 4). However, if for Brazil high interest 0 rates are the norm, in Russia this prac- tice appeared not before than two years ago. The rates are currently at an all Brazil Russia time high since the crisis in 2014. The inflation targeting regime oper- Fig.3 Inflation in Russia and Brazil. ating in the countries in question in- volves a rigid interest policy in the 15 event inflation is above the target level, 10 or vice versa - a soft interest policy in case inflation is below the target. 5 Within this framework, the step of bringing down the rate by 50 basis 0 points is now seen as optimal. At the meeting on 15 September, the -5 Bank of Russia lowered the key rate to -10 8.5 per cent. A less significant step (25 basis points) to reduce the key rate will allow speculators to strengthen the Rus- Brazil Russia sian currency still further, which may adversely affect the replenishment of Fig.4 Real interest rates in Russia and Brazil. the federal budget. Working paper №3 Trends of the Monetary System and Financial Markets Page 3 Too Big To Fail or Systemic Banks Got Under Rehabilitation In the autumn of 2017, the Bank of Table 1 Russia revoked licenses of seven credit Banks with revoked licences for the last three months institutions. Table 1 represents the credit institutions that were stripped off their Banks with revoked licences, Region of The size of assets, № licences. Sept - Nov 2017 registration bln.rub In view of the unsatisfactory quality Russian International Bank of assets that had not been generating 1. Moscow 15.80 sufficient cash flow, RIB proved unable (RIB) to meet its obligations to creditors in a 2. Arsenal Bank Moscow 0.80 timely manner. 3. TempBank Moscow 7.86 Arsenal Bank did not comply with the 4. International Stock Bank Moscow 3.39 requirements of legislation and regula- 5. Payment clearing house Moscow 0.15 tions in terms of combating the legitimi- 6. Regioninvestbank Moscow 0.86 zation of income - money laundering – 7. Novyj Simvol Moscow 2,08 earned from crime and financing of ter- TOTAL 30.94 rorism. These requirements demand 2 500 50% identifying some information about cli- ents’ illegal actions to mandatory control 2 250 45% and sending reliable information about 2 000 40% them to the authorized body. Meanwhile, 1 750 35% the bank's activity had been largely fo- 1 500 30% cused on carrying out checks on illegal 1 250 25% transfers of money abroad since 2016. 1 000 20% It can be seen from table 1 that the 750 15% total size of assets of the credit institu- 500 10% tions with revoked licenses amounted to 250 5% 30.94 billion rubles. All the banks were 0 0% participants in the deposit insurance The percentage of non-operating banks out of registered Июнь 2017 Январь 2006 Январь 2013 Январь 1992 Январь 1999 Апрель 2016 scheme, thus the license revocations are The number of operating banks (left scale) Ноябрь 2016 recognized as insurance coverage. Сентябрь 2015 Following Bank Otkrytie, which is in Fig.5 Operating and non-operating banks in Russia. the 7th place in terms of the size of as- sets, Binbank was subjected to the reso- privatbank (Binbank Digital), DNB Bank (Binbank Mur- lution procedure. The latter is in the 12th mansk) and Uralprivatbank. place as regards assets. The aggregate Currently, 28 commercial banks are undergoing finan- amount of funds allocated for the resolu- cial recovery procedures. Their total assets reached 8.8 tion of the two banks may exceed 1 tril- trillion rubles, which is 10.6% of the assets of the entire lion rubles. The Bank of Russia is cur- Russian banking system. The outstanding debt of legal rently considering the option of joining entities to the reorganized banks amounts to 42.8% of the Binbank to FC Otkrytie after completing total overdue debt of the banking system. the recovery procedures. In the last quarter, the deposits of the population in One of the possible reasons for the the reorganized banks doubled and reached 1.8 trillion current financial difficulties of Binbank rubles. This was mainly owing to Bank Otkrytie and Bin- may be its aggressive policy of merger bank. According to the preliminary results of the analysis and acquisition in the banking sector. of the financial condition of these banks, the amount nec- Earlier, the bank managed to absorb essary for their financial recovery will be 800-820 billion MDM Bank, Bashinvestbank, Moskom- rubles. Page 4 Trends of the Monetary System and Financial Markets Market Manipulation is Detected More Often than the Misuse of Insider Information The development of the financial market is accompanied not only by the improvement of its technologies, but also by the emergence of in- 19% creasingly complex unscrupulous practices of its participants. Initially, the Federal Service of the Financial 55% Markets - and now the Bank of Russia - is en- 26% gaged in identifying and adopting measures to influence violators. The procedure for inspec- tions is regulated by Federal Act no-224 “On Shares Investment units Bonds combating unlawful use of insider information and the manipulation in the financial market ...”. Fig.6 Distribution of identified cases of manipulation in the According to the list published by the mega- financial market by its segments from 2010 to 2017. regulator about the cases of misuse of insider information and market manipulation, only three cases of abuse of internal information have been officially revealed since 2010. The remaining cases are recognised as manipulation of the mar- ket. Variants of manipulation have been identi- fied.