57. The Conditions and Specifics of Modern Banking System in Russia. Состояние и особенности развитие современной банковской системы России.

Overview:

The Russian banking sector consists of more than 1000 banks (1007 as for 2010). Despite the large number of institutions operating in the country, the Russian banking sector is fairly concentrated and dominated by state-owned banks. The largest 20 banks control approximately 70% of total bank assets and six government-controlled banks account for 52% of total bank assets and 60% of deposits. The largest government-owned bank, Sberbank, is also the largest credit institution in the country and accounts for 25% of total assets of the Russian banking system.

Foreign bank presence is still relatively low in Russia. There are 108 credit institutions in the country with at least 50% foreign ownership. They account for about 18.3% of total banking assets and 12% of deposits.

The majority of banks in Russia are focused on lending to firms. Over two-thirds of banks receive 50% or more of their interest income from lending to businesses. On average, across all banks, the share of income from lending to businesses is 59%. On the other hand, the average share of income from lending to individuals is 25% and only 15% of banks receive the majority (50% or more) of their interest income from lending to individuals.

The penetration of banking services remains very low compared to both developed and emerging markets. The main products are corporate credits and deposits with high interest rates.

Development:

The banking sector was hit by the 2008/09 crisis but managed to resume growth as early as 2010, extending its vigorous recovery well into 2011, when the Central Bank of Russia reported a 23% year-on-year growth in banking assets. While the growth remained moderate for corporate lending (up 26%), retail loans quickly resumed pre-crisis growth rates at around 36%. Bank deposits continued to increase (up 24%), the share of bad loans fell to 4.1%, and banks posted record-breaking earnings.

Yet banks are still struggling with blurred consequences of crisis. The Bank of Russia is already an active liquidity provider as repo transactions hit an all-time high in June 2012.

In 2011, total banking assets were worth 76.3% of GDP; loan portfolios, 42.6%; and client deposits, 47.3%. Russia clearly has plenty of room for expansion in its banking services market, most applicable to consumer lending, including mortgage loans (with overdue debt currently standing at only 4% of GDP compared to over 50% in other countries), and rolling out new corporate lending products.

It also will develop private banking, since, for instance, the generation of 90s is getting old and needs legal services to create family trusts. Indeed there is demand for new products - new very educated risk takers are ready to invest money in order to increase wealth rather than preserve. All in all, these facts entail the development of private banking and product lines in general.