RUSSIAN FINANCIAL SECTOR I · 2019-10-04 · Newsletter –11 Key indicators –14 Macrofinance...

RUSSIAN FINANCIAL SECTOR

INVESTOR PRESENTATION

September 2019

CONTENTS

Колонтитул раздела или подраздела 2B

ank

of

Ru

ssia

: O

verv

iew

Evolution – 4

Reforms – 7

Compliance with international standards – 8

International cooperation – 9

Financial market development strategy – 10

Newsletter – 11

Ru

ssia

n M

acro

Up

dat

e Key indicators – 14

Macrofinance – 15

Inflation – 16

Inflation expectations – 17

Economic forecasts – 18

Monetary policy – 20

Ru

ssia

n F

inan

cial

Se

cto

r Banking sector – 22

Financial stability - 35

Securities market – 36

Corporate governance – 45

Countering malpractice – 46

Investment funds – 47

Non-state pension funds – 48

Insurance – 49

Commodities – 50

Microfinance – 51

Fintech – 52

Marketplace - 54

Payment infrastructure – 55

Consumer protection – 58

Financial inclusion – 59

AML/CFT – 60

Cybersecurity – 61

BANK OF RUSSIA: OVERVIEW 1

Evolution (1)


1990

Central Bank of Russia (CBR): founded in 1990

Federal Financial Markets Service (FFMS): founded in 1993

1992 – MICEX established– Law on insurance business

1995 – RTS exchange established

1996 – Law on securities market

1996 – Law on joint-stock companies

1999 – Law on protection of rights ofsecurities market investors

1995 2000 2005 2010 2015 2020

2013 CBR becomes the megaregulator of

the Russian financial sector

2002 – First edition of the Russian corporate conduct code

2003 – Law on mortgage-backed securities

2011 – Law on insider trading– MICEX and RTS merge into the Moscow Exchange– FISS joins FFMS and the latter becomes insurance market

regulator

2012 – National Settlement Depository obtains status of the CentralSecurities Depository (CSD) of Russia

2013 – National Clearing Center obtains status of the first qualified Central Counterparty (CCP) in Russia

2013 – CBR becomes an IAIS member as well as IOSCO member

2014 – Inflation targeting regime with 4% medium-term target rate– Introduction of a floating exchange rate regime– Approval of a new corporate governance code– National Card Payment System Joint-Stock Company

(AO NSPK) established

2015 – Signing of the IOSCO Multilateral Memorandum ofUnderstanding

– National payment system “Mir” established and “Mir”card issue started

2016 – Banking regulation in Russia assessed as compliant with Basel II, Basel 2.5 and Basel III (RCAP)

2017 – Introduction of proportional regulation in banking sector– Introduction of new financial rehabilitation mechanism

2018 – Bank of Russia joins MMoU IAIS

1990 – Law on banks and banking activities– Law on Central bank of RSFSR

1992 – Russia becomes an IMF member

1995 – Law on Central bank of RSFSR: amendments

1996 – CBR becomes a BIS member

2001 – Law on AML/CFT

2002 – Law on the Central Bank of the Russian Federation

2003 – Russia becomes a FATF member – Start of the IFRS reporting project– Law on deposit insurance

2005 – Introduction of corridor for USD&EUR basket within the exchange rate policy framework

2009 – CBR becomes a BCBS member– CBR becomes a CPMI member

2010 – Introduction of floating exchange ratecorridor

2011 – Law on National Payment System

Focus on Russian financial market development

EVOLUTION (2)Monetary policy framework development


Exchange rate regime development

Monetary policy framework development

2006

Inflation targeting announced

Inflation targeting is represented as a midterm goal in the “Monetary Policy Guidelines”

2008

Active inflation targeting communications

2009

Liquidity management

Instruments are developed, the interest rate corridor is narrowed

1998 - 2008

Narrow band

2012

Transition deadline set

“Floating rate and inflation targeting by 2015”

2014

Floating exchange rate introduced

2008 - 2014

Flexible band

2013

Key rate introduced

2015

Transition to the inflation targeting regime is completed

Medium-term inflation target is around 4%

Since Nov. 2014

Free floating Ruble

Dec. 2017

Inflation below 4%

(2.5% - all-time low in July 2018)

Dec. 2018

Inflation 4.3%

Evolution (3)Bank of Russia supervises the following key segments

6

Banking sector

Microfinance

Payment infrastructure

Asset managers

Credit rating agencies

Non-state pension funds

Securities market, including securities

market professionals

Insurance sector

Market infrastructure,

including fair pricing

BANK OF RUSSIA: OVERVIEW

REFORMSPromoting price and financial stability, fair competition, newest technologies and best practices

7

Inflation targeting regime adopted with a 4% medium-term target rate pursued using conventional monetarypolicy instruments

‒ Banking sector rehabilitation in progress, new bankresolution mechanism introduced

‒ Proportional regulation introduced and anadvanced IRB approach for the largest banksgradually phased in

‒ Banking regulation compliant with the Basel II,Basel 2.5 and Basel III standards, maintainingAML/CFT supervision of credit and non-creditfinancial institutions (according to the RegulatoryConsistency Assessment Program (RCAP) 2016)

‒ New macroprudential regulation mechanism inforce – add-ons to risk ratios are introduced andset by the Bank of Russia Board of Directors

‒ Introduction of PTI ratio for macroprudentialregulation purposes starting October 1, 2019

‒ Setting up a national rating industry - only creditratings of Russian national agencies may be used forregulatory purposes

JS companies segregation into public and non-public,corporate actions reform, new corporate governance codeadopted in 2014, listing rules based on the new corporategovernance code, listing committees established

‒ Benefits from infrastructure put in place, tax andregulatory reforms (T+2, CSD and access of ICSDs, up-to-date CCP, Individual Investment Accounts)

‒ Marketplace project infrastructure is developed – launchof the platform is planned for 2019

‒ Guarantee fund mechanism introduced‒ Investment horizon for non-state pension funds

extended to 5 years‒ Individual pension capital (IPC) accounts legislation is

under development

Monetary policy

Banking regulation and supervision

Market infrastructure

Corporate governance

Pension system

‒ Russian payment system infrastructure developed andcurrently in use by all leading international paymentsystems

‒ Payment infrastructure monitoring and supervision‒ System for transfer of financial messages (SPFS) has been

developed‒ The Faster Payments System launched in January 2019

Payment infrastructure


COMPLIANCE WITH INTERNATIONAL STANDARDSRussia complies with or implements key international standards and best practices

8

Banking regulation is compliant withBasel II, 2.5 and Basel III (RCAP 2016)

Russia’s Anti-Money Laundering system iscompliant with FATF Recommendations

Bank for International Settlements, IAIS andIOSCO Principles for financial marketinfrastructures (PFMI) are beingimplementedUpon monitoring the implementation of thePFMI, the CPMI gave Russia the highest-possible ‘4’ rating

High FSAP grades in all surveyed segments,including securities market, insurance andpayment infrastructure

Russia ranks#31 in DOING BUSINESS-2019Ratings (#35 in 2018)

National Settlement Depository is eligiblefor custody arrangements under Rule 17f-7of the US Investment Company Act of 1940

Russia is a party to the Articles ofAgreement of the IMF and upholds freemovement of capital

Insurance sector has started implementingSolvency II European principles


INTERNATIONAL COOPERATIONBank of Russia cooperates with international financial institutions, regulators and associations

9

G20

BRICS


FINANCIAL MARKET DEVELOPMENT STRATEGYGuidelines for the Development of the Russian Financial Market in 2019 - 2021

10

The Bank of Russia Guidelines for the Development of the Russian Financial Market in 2019 – 2021 cover the following key areas and activities:

• Implementation of integrated road map for developing competition in various sectors of Russian economy approved by the Government

• Building biometric database

• Credit history bureau reform

• Marketplace project launch

• Faster payment system in force

• Testing of digital identification platform

• “Regulatory sandbox” project development

• Bank of Russia’s withdrawal from the capital of banks undergoing resolution after their financial rehabilitation

• Introduction of individual pension capital accounts

• Introduction of “green” bonds

• Crowdfunding

• Introduction of new rules for crediting private-public partnerships

• Development of concession projects

• Marketplace project launch

• Introduction of financial services access points map

• Development of remote identification and unified biometric system

• Development of electronic insurance services distribution channels

• Improving insurance services inclusion in Russian regions

• Involvement of financial consumer ombudsmen in disputes resolution

• Increase of personal responsibility of management

• Limited employment opportunities in financial sector for malicious (unscrupulous) people

• Development of qualified investor institute

• Increase of responsibility for substandard sale of financial products

• Unified financial transactions register

• Control for the population indebtedness and prevention excessive risk accumulation in the segment

• Risk-based approach to insurance market participants

• Widening the list of financial non-credit institutions subject to stress testing

• Improving the toolkit for macroprudential stress testing

Building reliable financial environment

Improving financial inclusion and availability of capital

Developing market competitiveness

Ensuring financial stability


NEWSLETTER (1)Key news from the Russian financial market

11

3 July 2019Starting June 2019, in the context of new standardised approach to credit risk assessment revisions have beenimplemented in assessing credit risk for sovereign borrowers based on external long-term creditworthiness ratings. Thismakes it possible to reduce the ratios for sovereign borrowers and export guarantee loans from 100% to 50%.

11 June 2019Starting from 1 October 2019, banks will be required to calculate customers’ PTI (payment-to-income) ratio. Add-ons tothe risk ratios applied to consumer loans will be then set by the Bank of Russia depending on both the PTI and the effectiveinterest rate.

31 May 2019The Bank of Russia decided to raise required reserve ratios on liabilities to individuals in foreign currency for creditinstitutions by 1 percentage point to 8.0%, effective from 1 July 2019.

5 June 2019

Daily amount of regular foreign currency purchases in the domestic market under the fiscal rule is:

RUB 8.9 bn from 6 Sep until 4 Oct 2019 RUB 16.3 bn from 7 Jun until 4 Jul 2019

RUB 11.2 bn from 7 Aug until 5 Sep 2019 RUB 16.7 bn from 14 May until 6 Jun 2019

RUB 10.0 bn from 5 Jul until 6 Aug 2019 RUB 11.6 bn from 5 Apr until 13 May 2019

28 January 2019The Faster Payments System launched and is set to enable individuals to make instant transfers to each other 24/7/365using a mobile phone number – regardless of in which banks the sender and recipient have their accounts.

25 January 2019The Bank of Russia decided to commence from 1 February 2019 deferred foreign currency purchases in the domesticmarket under the fiscal rule to compensate for the regular purchases suspended in 2018. These purchases will be carriedout gradually in the 36 months since the launch date with the daily amount of RUB 2.8 bn.


NEWSLETTER (2)Key news from the Russian financial market

12

1 January 2019

Capital conservation buffer will be raised in accordance with the schedule approved by the Bank of Russia – it willstand at 1.875% from 1 January 2019, 2.0% from 1 April 2019, 2.125% from 1 July 2019, 2.25% from 1 October 2019,and 2.5% from 1 January 2020.

The SIFI capital buffer (applied to 11 systemically important Russian banks) will remain at 0.65% throughout 2019.

The minimum LCR requirements for SIFI raised from 90% to 100% in accordance with the Basel III standards.

The deposit insurance system will cover small enterprises’ funds up RUB to 1.4 mln deposited with Russian banks thathave joined the deposit insurance system.

Systemically important banks start to calculate the ratio of maximum concentration of exposure per borrower orgroup of related borrowers and report it to the Bank of Russia. Based of the results of monitoring this indicator, theBank of Russia will make a decision on the terms and specifics for setting it as a required ratio.

28 December 2018The Bank of Russia has permitted Raiffeisenbank to use internal ratings-based (IRB) approach for the purpose ofcalculating regulatory capital (effective 1 Feb 2019).

21 December 2018The Bank of Russia raises risk weights on unsecured consumer loans extended after 1 April 2019 with the effective interest rate of 10% to 30%.

14 December 2018The Bank of Russia decided to resume regular foreign currency purchases in the domestic market under the fiscal rule that were suspended in 2018, starting 15 January 2019.

1 October 2018

The Bank of Russia completed transition to the new macroprudential regulation mechanism by introducing risk weightadd-ons for capital adequacy calculation by credit institutions while bringing standard risk weights on assets in linewith Basel III requirements (effective 8 Oct).

Risk weight add-ons for mortgage loans and loans for construction co-funding with LTV > 80% were set at 100%, i.e.200% risk-weight will be applied to such loans extended after 1 January 2019. The buffer will only be effective as longas the loan-to-value ratio exceeds 80%.

The countercyclical capital buffer for Russian credit institutions is retained at 0% of risk-weighted assets.


RUSSIAN MACRO UPDATE 2

KEY INDICATORSClear signs of macro stabilization across the board

RUSSIAN MACRO UPDATE 14

Figure 3: Russian Ruble volatility remains low while in free-floating Figure 4: Retail sales and real wages dynamics (YoY, %)

Figure 1: Real GDP growth started to recover in 2016 (YoY, %) Figure 2: Private consumption and investment dynamics (YoY, %)

Source: Bank of Russia, Rosstat

6.8

7.9 5.2

2.0

- 9.4

- 1.9

3 2.3

9.1

5.0

1.3

- 1.8

- 11.2

0.7 5.5

2.9

-15

-10

-5

0

5

10

15

2011 2012 2013 2014 2015 2016 2017 2018 2019Е

Private consumption Investments

1.5

1.01.0

0.0

4.3 3.7

1.8

0.7

- 2.5

0.3 1.6

2.3 1.3

0.8

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2011 2012 2013 2014 2015 2016 2017 2018 2019Е

61.966.4

30

40

50

60

70

80

90

02

.15

05

.15

08

.15

11

.15

02

.16

05

.16

08

.16

11

.16

02

.17

05

.17

08

.17

11

.17

02

.18

05

.18

08

.18

11

.18

02

.19

05

.19

08

.19

RU

B p

er 1

USD

-7.4

3.5

-9.5

1.0

-15

-10

-5

0

5

10

15

04

.15

07

.15

10

.15

01

.16

04

.16

07

.16

10

.16

01

.17

04

.17

07

.17

10

.17

01

.18

04

.18

07

.18

10

.18

01

.19

04

.19

07

.19

Real wages Retail sales

MACROFINANCESolid fiscal and external positions

15

Figure 7: Significant international reserves assuring financial stability Figure 8: Sovereign debt to GDP lowest in both EM and DM spaces

Figure 5: Current account surplus amounted to USD 114 bn in 2018 Figure 6: Strong fiscal position: budget consolidation and fiscal rule

Source: Bank of Russia, Bloomberg, Ministry of Finance

114

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

5.4 4.1

-6.0

-3.9

0.4

-0.2-0.8 -0.7

-2.8-3.9

-1.3

2.7

0

20

40

60

80

100

120

-12

-8

-4

0

4

8

12

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Russian Federal Budget Balance, % of GDP, lhs Urals, $/bbl, rhs

636.4

482.4537.6

518.4

200

300

400

500

600

700

800

12

.12

06

.13

12

.13

06

.14

12

.14

06

.15

12

.15

06

.16

12

.16

06

.17

12

.17

06

.18

12

.18

06

.19

External debt, $bn Reserves, $bn

External debt/GDP 1H19 = 30% Reserves/GDP 1H19 = 32.8%Reserves cover 17 months of import

98%109%

38%51%

8% 14%

0%

20%

40%

60%

80%

100%

120%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Developed countries Emerging countries Russia

RUSSIAN MACRO UPDATE

-4%

0%

4%

8%

12%

16%

20%

24%

06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19

CPI Non-food products Food Services Key rate Medium-term inflation target

INFLATION Medium-term inflation target successfully met in 2017-2018

16

Figure 9: Inflation (YoY, %)

Source: Bank of Russia, Rosstat

Medium-term inflation target

4.3%*

* As of August 31, 2019

January 2016: Oil prices reach their lowest level in a decade


INFLATION EXPECTATIONSHouseholds and businesses inflation expectations remain elevated

17

Source: FOM, Rosstat, Bloomberg, Interfax, Thompson Reuters, Bank of Russia

2017 2018 2019

Horizon I II III IV Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Inflation expectations (absolute numbers), %

Households

FOM Next 12 months 11.2 10.3 9.6 8.7 8.9 8.4 8.5 7.8 8.6 9.8 9.7 9.9 10.1 9.3 9.8 10.2 10.4 10.1 9.1 9.4 9.3 9.4 9.4

FOM (observed inflation) Prev. 12 months 14.0 12.4 11.2 10.0 9.9 9.4 9.2 8.3 9.2 10.6 10.3 10.4 10.2 10.1 10.1 10.2 10.1 10.6 10.0 10.5 10.4 10.2 9.9

FOM (Bank of Russia calculations) Next 12 months 4.0 4.0 2.8 2.5 2.1 2.1 2.2 2.2 2.2 2.6 2.8 3.5 3.8 3.8 4.4 5.4 6.2 5.9 5.7 5.5 5.5 4.9 5.3

Professional analysts

Bloomberg 2019 4.0 4.0 4.2 4.4 4.7 4.5 4.6 4.5 4.7 4.6 4.7 4.5 4.5 4.5 4.3

Interfax 2019 3.6 3.7 3.8 4.1 4.0 4.1 4.3 4.4 4.3 4.2 4.4 4.7 4.8 4.7 4.6 4.5 4.5 4.3 -

Reuters 2019 3.9 3.9 4.0 4.3 4.5 4.5 4.5 4.7 5.0 4.8 4.8 4.8 4.8 4.6 4.3 -

Financial markets

OFZ IN (option not subtracted) 2023 4.9 4.6 4.2 3.9 4.0 3.9 3.8 4.1 4.2 4.5 4.6 5.2 5.3 5.1 5.1 5.1 5.1 5.0 4.9 4.6 4.2 3.9 3.7

OFZ IN (option not subtracted) 2028 4.3 4.6 4.6 5.0 5.4 5.2 5.2 5.1 4.9 4.9 4.8 4.7 4.3 3.9 3.8

Inflation expectations (balanced index*)

Households

FOM Next 12 months -4.4 -4.1 -3.6 0.5 -1.5 -0.9 -3.2 -4.8 -3.1 9.1 8.6 11.3 9.8 7.9 14.3 20.6 18.6 11.5 8.0 5.6 6.5 5.4 -

FOM Next month -12.2 -10.4 -16.5 -16.9 -24.5 -19.5 -15.9 -17.3 -12.6 0.0 -5.6 -3.7 -4.5 -5.9 -6.8 -3.5 1.9 -8.2 -9.8 -8.1 -10.7 -14.6 -

Businesses

Bank of Russia monitoring Next 3 months 7.9 8.6 7.5 7.3 6.8 6.3 7.0 8.8 10.2 10.3 10.9 11.1 12.4 12.9 13.7 16.1 18.1 12.8 11.0 10.0 9.6 10.2 9.0

PMI input prices Next month 7.8 9.0 12.2 10.6 9.2 11.4 12.2 27.4 27.2 28.4 21.6 22.8 24.2 23.4 22.6 22.0 35.0 26.8 23.6 19.8 14.2 11.8 -

PMI output prices Next month 1.0 3.4 6.8 3.0 2.8 2.8 4.0 13.6 6.4 6.6 8.2 6.6 5.8 7.6 7.6 5.6 20.4 14.4 10.0 8.8 5.6 4.4 -

Retail prices (Rosstat) Next quarter 27 24 24 22 - - 20 - - 20 - - 20 - - 19 - - 21 - - - -

Tariffs (Rosstat) Next quarter 4 3 0 0 - - 5 - - 5 - - 0 - - 1 - - … - - - -

Change:

- Inflation expectations become better (more than 1 standard deviation)

- Inflation expectations become better (less than 1 standard deviation)

- Inflation expectations unchanged (±0,2 standard deviations)

- Inflation expectations become worse (less than 1 standard deviation)

- Inflation expectations become worse (more than 1 standard deviation)

*Balanced index is the difference between the shares of those who expect prices to rise and to fall


ECONOMIC FORECASTS (1)Medium-term outlook for the Russian economy

18

* Banking sector claims on the economy mean all claims of the banking system on non-financial organisations and financial institutions and households in the currency of the Russian Federation, foreign currency, and precious metals, including loans extended (including overdue loans), overdue interest on loans, investments of credit institutions in debt and equity securities and promissory notes, other forms of stakeholding in the capital of non-financial organisations and financial institutions, and other receivables under settlement operations with non-financial organisations and financial institutions and households.

Source: Bank of Russia


Key parameters of the Bank of Russia’s forecast scenarios

(growth as % of previous year, if not indicated otherwise)

2018

(actual)

BASELINE

2019 2020 2021 2022

Urals price, average for the year, US dollars per barrel 69.8 63 55 50 50

Inflation, as % in December year-on-year 4.3 4.0–4.5 4.0 4.0 4.0

Inflation, average for the year, as % year-on-year 2.9 4.6–4.8 4.0 4.0 4.0

Gross domestic product 2.3 0.8–1.3 1.5–2.0 1.5–2.5 2.0–3.0

Final consumption expenditure 1.8 1.0–1.5 1.5–2.0 1.5–2.0 1.8–2.3

– households 2.3 1.0–1.5 2.0–2.5 2.0–2.5 2.0–2.5

Gross capital formation 0.8 0.0–1.0 3.5–4.5 3.5–4.5 2.5–3.5

– gross fixed capital formation 2.9 0.0–1.0 3.5–4.5 3.5–4.5 2.5–3.5

Exports 5.5 −(0.3–0.8) 2.0–2.5 2.0–2.5 2.5–3.0

Imports 2.7 −(0.3)–0.2 3.0–3.5 3.5–4.0 2.5–3.0

Money supply in national definition 11.0 8–12 7–12 7–12 7–12

Banking system claims on the economy in rubles and foreign currency*

11.5 8–12 7–12 7–12 7–12

– claims on organisations in rubles and foreign currency;

growth as % over year8.4 7–10 6–10 6–10 6–10

– claims on households in rubles and foreign currency;

growth as % over year22.0 15−20 10−15 10−15 10−15

ECONOMIC FORECASTS (2)Medium-term outlook for the Russian economy

19

* Using the methodology of the 6th edition of “Balance of Payments and International Investment Position Manual” (BPM6). In the Financial account “+” stands for net lending, “-” – for net borrowing. Due to rounding total results may differ from the sum of respective values.



Russia’s balance of payments indicators*

(billions of US dollars)

2018

(actual)

BASELINE

2019 2020 2021 2022

Current account 113 83 56 39 28

Balance of trade 194 166 141 126 120

Exports 443 415 395 389 396

Imports 249 249 254 263 276

Balance of services -30 −31 −34 −36 −39

Exports 65 64 63 65 67

Imports 95 95 97 101 106

Balance of primary and secondary income -51 −52 −51 −52 −53

Current and capital account balance 112 83 56 39 28

Financial account (excluding reserve assets) 77 20 19 14 14

Government and the central bank 9 −20 −6 −6 −6

Private sector 68 40 25 20 20

Net errors and omissions 2 −3 0 0 0

Change in reserve assets ('+' – increase, '-' – decrease) 38 60 37 25 14

MONETARY POLICYDisinflationary and pro-inflationary risks are balanced till the end of 2019

20

Decisionas of September 6, 2019

The Bank of Russia cuts the key rate by 25 bp

to 7.00% p.a.

Signal

“…If the situation develops in line with the baseline forecast,

the Bank of Russia will consider the necessity of

further key rate reduction at one of the upcoming Board of

Directors’ meetings.

In its key rate decision-making, the Bank of Russia will take

into account actual and expected inflation dynamics

relative to the target and economic developments over

the forecast horizon, as well as risks posed by domestic and external conditions and the

reaction of financial markets.…”


Inflation slowdown is continuing. At the same time, inflation expectations remain elevated.

The Russian economy’s growth rate is still coming in lower than the Bank of Russia’sexpectations.

Risks of a global economic slowdown have increased.

Risks of inflation accelerating or slowing down by the year-end are balanced.

In these circumstances and taking actual inflation dynamics into account, the Bank of Russiahas lowered its end-of-year annual inflation forecast for 2019 from 4.2-4.7% to 4.0-4.5%.

Moving on, according to the Bank of Russia’s forecast and taking into account the monetarypolicy stance, annual inflation will remain close to 4%.

7.00

4.3

0

2

4

6

8

10

12

2017 2018 2019

Key rate, % per annum Inflation, % YoY


FINANCIAL SECTOR OVERVIEW3

BANKING SECTOR: CURRENT AGENDAShaping a favourable operating environment and supporting market competition

FINANCIAL SECTOR OVERVIEW 22

New resolution mechanism: reducing financial costs and execution period of the resolution

procedure

Proportional banking regulation: differentiating regulatory burden for banks based on their size and simplifying requirements for smaller banks

focused on retail and SME lending

Imminent introduction of PTI ratio in order to affect the consumer lending market more

efficiently

Development of banking supervision: introduction of the Basel Committee on Banking

Supervision (BCBS) standard on capital requirements for banks` equity investment in

funds (since December 16, 2017)

Risk-oriented supervision: aiming to remedy problematic situations in banks at an early stage

Development of macroprudential regulation: streamlining the regulation, introducing

countercyclical approach

New regulations to the credit bureaus: authorising several strategic credit bureaus with the function of aggregating information on debt

payments

Basel II and III in force: Leverage ratio (except for banks with basic license), NSFR – for Domestic-

SIBs

BANKING SECTOR: PROPORTIONAL REGULATIONDifferentiating regulatory burden for banks depending on their size

23

Regulatory burden depends on license type

UNIVERSAL LICENSEBASIC LICENSE

• Minimum size of capital (own funds) –RUB 300 mln

• Only 5 mandatory requirements, including H1.0, H1.2, H3, H6, H25 ratios

• Limitations on international operations

• Simplified disclosure rules - not required to disclose information on accepted risks, their assessment or management procedures, or any information on financial instruments included in the calculation of their own funds (capital)

• Technically complicated international standards are non applicable

• Minimum size of capital (own funds) – RUB 1 bln

• May carry out all banking operations set forth by the law

• All mandatory requirements set by the Bank of Russia must be met

• Must be compliant with all international standards

• Financial reporting fully compliant with RAS and IFRS

• Higher capital adequacy requirements

• Advanced risk management approach

Systemically important financial institutions (SIFI) are subject to:

On 1 June 2017, Federal Law No. 92-FZ dated 1 May 2017 came into force. It envisages the introduction of proportional regulation designed to set up a regulatory balance for banks differing in scale and in the nature of operations. 138 banks hold basic license, as of 1 August 2019.

FINANCIAL SECTOR OVERVIEW

BANKING SECTOR: NEW RESOLUTION MECHANISMUnder new mechanism both costs of resolution and time required have been reduced significantly

24

RUB 2.6 tn have been provided to three banking

groups (Otkritie, B&N, Promsvyazbank)

RUB 758.3 bnfor additional capitalization

RUB 1.86 tn

for liquidity (deposits)*

* Have been fully repaid by the end of 2018

**BNA – Bank of non-core assets based on NB TRUST, ROST BANK and Bank AVB

Additional

RUB 379.1 bn

RUB 156.1 bn for the establishment of BNA**

RUB 42.7 bn for additional capitalization of Otkritie Bank

RUB 9.0 bn for additional capitalization of APB

RUB 128.7 bn for additional capitalization for MIB and RUB 39.9 bn

for liquidity (deposits)

RUB 2.7 bn for additional capitalization for VOCBANK

List of banks under financial rehabilitation procedure

1 Bank FC Otkritie (merged with B&N Bank)

2 Promsvyazbank

3 National Bank TRUST (with ROST Bank and AVB Bank)

4 Asian-Pacific Bank (APB)

5 Moscow Industrial Bank (MIB)

6 Volga-Oka Bank (VOCBANK)

On July 2, 2019, the Bank of Russia’s Board of Directors has decided tocomplete the implementation of bankruptcy prevention measures forBank FC Otkritie. Currently, the Bank complies with all Bank of Russia’sstatutory requirements for financial resilience and creditworthiness.

Promsvyazbank complies with all capital adequacy and liquidityrequirements and operates its business in its usual way. The bank fullyrepaid CBR deposits placed in the bank during resolution process.

As a result of the financial resolution measures and implementationof a new business model in the Asian-Pacific Bank, its financial standinghas been stabilised, new capital has been formed, outflow of its clients’funds has been stopped, its solvency has been restored and the Bank’sprofitability has become stable. The Bank is supposed to be sold in 2020after it discloses information about its 2019 performance to the public,including potential investors.

On 12 July 2019, the Bank of Russia approved amendments to the plan ofits participation in bankruptcy prevention measures for the MoscowIndustrial bank (MIB). These amendments provide for the Bank of Russiato allocate 128.7 billion rubles for recapitalisation purposes.


BANKING SECTOR: KEY FIGURESActive supervision and tighter regulation allowed to strengthen the health of the banking sector

25

Figure 12: Loans and deposits volume (RUB tn) and growth rates Figure 13: Banks hold an acceptable level of capital under Basel III

Figure 10: In 2013-2018 more than 400 licenses were revoked causing almost no impact on the banking sector’s total assets

Figure 11: Banking sector profitability restored to record high levels


978

46441.6

92.5

16

32

48

64

80

96

112

0

200

400

600

800

1 000

1 200

2011 2012 2013 2014 2015 2016 2017 2018 6m19

Number of credit institutions, lhs Banking sector assets, RUB tn, rhs

994 1 005

1.9 1.9

15.217.1

0

3

6

9

12

15

18

100

300

500

700

900

1 100

1 300

2013 2014 2015 2016 2017 2018 6m2019

Profit, bln RUB, lhs ROA, rhs ROE, rhs

44.0

49.8

50.355.8

1.5

11.610.6 6.6

-4

-1

2

5

8

11

14

30

35

40

45

50

55

60

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Corporate and retail loans, lhs Corporate and retail deposits, lhs

Loans YoY growth*, % rhs Deposits YoY growth*, % rhs

*421 banks and 43 non-banking credit organisations

*YoY, ccy adj. by credit institutions operating as of the reporting date *excluding credit institutions under financial rehabilitation procedure


13.5 13.7

12.5 12.713.1

12.1 12.2 11.8

14.2* 14.5* 14.2*

10

11

12

13

14

15

2012 2013 2014 2015 2016 2017 2018 6m19

Capital adequacy ratio, N1.0, %

BANKING SECTOR: FUNDING The funding of the banking sector mostly comes from corporate and retail deposits

26

Figure 16: Operations with the Bank of Russia, tn RUB Figure 17: Sources of funding, % of total liabilities

Figure 14: In June 2019 corporate deposits grew by 5.1% YoY to RUB 26.8 tn

Figure 15: In June 2019 retail deposits demonstrated growth of 8.0% YoY, reaching RUB 29 tn


27.1 26.8

3.8% 5.1%

-10%

-5%

0%

5%

10%

15%

20%

18

20

22

24

26

28

30

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Corporate deposits, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs

23.2

29.0

19.2%

8.0%

0%

5%

10%

15%

20%

25%

30%

18

20

22

24

26

28

30

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Retail deposits, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs

-2.90

2.89

-5.5

-3.5

-1.5

0.5

2.5

4.5

6.5

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Borrowings from the Bank of Russia (with minus sign)

Claims to the Bank of Russia

Net claims to the Bank of Russia, rhs

23.8%

30.2%12.0%

34.0%

Retail deposits Corporate deposits

Central bank funding Other sources

31.3%

29%2.8%

36.9%


1.01.2015 1.07.2019

BANKING SECTOR: INTEREST RATESInterest rates plateaued at the end of 2018 following tighter monetary policy

Колонтитул раздела или подраздела 27

Figure 25: Weighted average interest rates on loans in rubles, %

Figure 26: Weighted average interest rates on deposits in rubles, %

Figure 27: Max interest rate on retail deposits in rubles of top-10 banks and Bank of Russia’s policy rate, %

6.77

6.92

4.0

6.0

8.0

10.0

12.0

14.0

16.0

01

.14

06

.14

11

.14

04

.15

09

.15

02

.16

07

.16

12

.16

05

.17

10

.17

03

.18

08

.18

01

.19

06

.19

Corporate deposit rates Retail deposit rates

9.83

13.37

4.0

8.0

12.0

16.0

20.0

24.0

28.0

01

.14

06

.14

11

.14

04

.15

09

.15

02

.16

07

.16

12

.16

05

.17

10

.17

03

.18

08

.18

01

.19

06

.19

Corporate loan rates Retail loan rates


7.50%

7.13%

4%

6%

8%

10%

12%

14%

16%

18%

01

.14

07

.14

01

.15

07

.15

01

.16

07

.16

01

.17

07

.17

01

.18

07

.18

01

.19

07

.19

Key rate

Max retail deposit rate of top-10 banks

BANKING SECTOR: LENDING Retail loans remain the key driver of credit growth

28

Figure 20: Share of bad corporate loans* reached 12.4%, while the loan loss reserves to bad loans ratio amounted to 83.8%

Figure 21: Retail loans portfolio demonstrates improved quality: the share of bad loans* reached 7.3%

Figure 18: Corporate lending has stabilized around 6.8% YoY Figure 19: Retail lending increased 23.1% YoY in June 2019

* Loans classified into quality category of IV and V according to the requirements of Regulation No.590-P2.Quality category IV – high credit risk (probability of financial losses due to non-performance or improper performance of obligations by the borrower requires its depreciation by 51 to 100 per cent);Quality category V – no possibility of loan repayment due to the borrower’s inability or refusal to meet loan commitments, which requires complete (100 per cent) depreciation of the loan.

33.3 33.5

4.1% 6.8%

-30%

-20%

-10%

0%

10%

20%

30%

26.5

28.0

29.5

31.0

32.5

34.0

35.5

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Corporate loans, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs

10.7

16.3

-5.3%

23.1%

-10%

-5%

0%

5%

10%

15%

20%

25%

9.5

10.5

11.5

12.5

13.5

14.5

15.5

16.5

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Retail loans, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs

9.1%

12.4%92.3%

83.8%

80%

83%

85%

88%

90%

93%

95%

2%

4%

6%

8%

10%

12%

14%

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Share of bad loans, lhs Loan loss reserves to bad loans ratio, rhs

12.9%

7.3%95.6%

111.3%

94%

97%

100%

103%

106%

109%

112%

7%

8%

9%

10%

11%

12%

13%

14%

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Share of bad loans, lhs Loan loss reserves to bad loans ratio, rhs



BANKING SECTOR: MORTGAGE SEGMENTMortgage lending is characterised by high growth rates and decent asset quality

29

Figure 30: Distribution of mortgage borrowers by LTV Figure 31: Risk weights applied to mortgage loans

Figure 28: Mortgage lending increased 21.7% YoY in June 2019 Figure 29: Share of NPLs remains at historically low levels


4.10

7.19

12.0%

21.7%

0%

5%

10%

15%

20%

25%

30%

2

3

4

5

6

7

8

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Mortgage loans, RUB tn, lhs

YoY (ccy adj., by credit institutions operating as of the reporting date), rhs

3.0%

1.5%113.0%

141.1%

112%

117%

122%

127%

132%

137%

142%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

NPL ratio, lhs Loan loss reserves to bad loans ratio, rhs

0.6%2.1%

4.1%7.1%

9.7%11.9%

22.6%

40.6%

1.2%

0%

7%

14%

21%

28%

35%

42%

10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% >90%

4Q2017 1Q2018 2Q2018

3Q2018 4Q2019 1Q2019

100 100150

+50 +50

+150

+50 +50

0%

50%

100%

150%

200%

250%

300%

Loans for financing underequity construction

agreements withdown payment <20%

Mortgages withLTV>80%

Mortgages withLTV>90%

end 2017 January 1, 2018 January 1, 2019

200%

300%

200%

LTV interval


BANKING SECTOR: UNSECURED CONSUMER LENDINGThe unsecured lending market is at an ascending stage of the credit cycle

30


Figure 22: Consumer lending increased 24.7% YoY in June 2019

Figure 23: Share of NPLs decreased to 8.4%

Figure 24: Risk weights applied to unsecured consumer loans, %

100 100 110140

300%

600%

+10+10+20

+30+50

+60

+30+30

+30+30

0

100

200

300

400

500

600

10-15% 15-20% 20-25% 25-30% 30-35% 35%+

Effective interest rate

March 1, 2017 May 1, 2018 September 1, 2018 April 1, 2019

150%170%

200%230%

5.60

8.19

-11.4%

24.7%

-14%

-8%

-2%

4%

10%

16%

22%

28%

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Unsecured consumer loans, RUB tn, lhs

YoY (by credit institutions operating as of the reporting date), rhs

16.9%

8.4%

103.6%

127.6%

100%

105%

110%

115%

120%

125%

130%

8%

10%

12%

14%

16%

18%

20%

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

NPL ratio, lhs Loan loss reserves to bad loans ratio, rhs

Against the background of advancing growth in unsecuredconsumer lending relative to households’ income, The Bank ofRussia revised the scale of risk weights for such loans in 2017-2018 in order to prevent excessive risk-taking in this segment


BANKING SECTOR: INTRODUCTION OF PTI The Bank of Russia introduces a payment to income ratio for regulation purposes

31

Effective from 1 October 2019, the Bank of Russia intends to set add-ons to the risk coefficients depending on the payment to income ratio (PTI) and the effective interest rate (EIR).

EIR interval, % 0-10 10-15 15-20 20-25 25-30 30-35 35+

Value of add-ons 0.6 0.7 1.1 1.5 1.8 2.1 5.0

PTI interval, %

EIR

in

terv

al,

%

0-30 30-40 40-50 50-60 60-70 70-80 80+

0-10 0.3 0.3 0.3 0.6 0.7 0.9 1.1

10-15 0.5 0.5 0.5 0.7 0.8 1.0 1.2

15-20 0.7 0.7 0.7 1.1 1.3 1.4 1.6

20-25 1.0 1.0 1.0 1.5 1.7 1.8 2.0

25-30 1.3 1.3 1.3 1.8 1.9 2.0 2.2

30-35 2.0 2.0 2.0 2.1 2.2 2.3 2.5

35+ 5.0 5.0 5.0 5.0 5.0 5.0 5.0

Values of add-ons to the risk coefficientsapplied to unsecured consumer loanssubject to calculation of PTI

Values of add-ons to the risk coefficientsapplied to unsecured consumer loansfor which PTI calculation is notobligatory

Higher level of add-ons will be applied toloans with PTI exceeding 50%.

Banks will calculate PTI in accordance withAppendix 1 to Bank of Russia OrdinanceNo.4892 U when making a decision ongranting a loan in the amount (total creditamount) of ₽10,000 or more or an increasein the total credit amount on a bank card.



BANKING SECTOR: DEDOLLARISATIONDollarization of the banking sector has notably reduced over the last years

32

Figure 34: Share of corporate and retail FX deposits in total amount of deposits has fallen

Figure 35: Risk weights applied to the FX assets, %

Figure 32: Corporate FX lending declined significantly over the past few years

Figure 33: Retail FX loan portfolio is insignificant in size


100 100 100 100

+10+30

+50

+10

+20

+20

40

60

80

100

120

140

160

FX loans toexporters

Other corporateFX loans

Commercial FXmortgages

Securities of non-resident

companies

end 2015 May 1, 2016 July 1, 2018

110%

130%150% 150%

181.7

133.5

39.8%

25.2%

25.0%

27.5%

30.0%

32.5%

35.0%

37.5%

40.0%

42.5%

120

130

140

150

160

170

180

190

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Corporate loans, USD bn, lhs Share of FX loans in total amount of loans, rhs

4.0

1.5

2.7%

0.6%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1.0

1.5

2.0

2.5

3.0

3.5

4.0

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Retail loans, USD bn, lhs Share of FX loans in total amount of loans, rhs

48.9%

34.9%

29.4%

20.9%

15.0%

17.5%

20.0%

22.5%

25.0%

27.5%

30.0%

32.5%

34.0%

36.5%

39.0%

41.5%

44.0%

46.5%

49.0%

51.5%

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Share of FX deposits in total corporate deposits, lhsShare of FX deposits in total retail deposits, rhs Retail Corporate


4.25 4.25

+1.75 +2.75+1

+1+1

8% 8%

July 1, 2019August 1, 2018August 1, 2016

end 2015

Reserve requirements

BANKING SECTOR: CAPITAL ADEQUACYHigh quality capital base and solid capital adequacy levels under Basel III standards

33

Figure 36: Capital adequacy ratio for the banking sector decreased over from 12.9% (1.01.16) to 11.8% (1.07.19) mostly due to the procedures of financial rehabilitation of the large credit institutions

Figure 37: Credit organizations with capital exceeding RUB 25 bnhave lower buffer vs N1.0 minimum requirement due to the economies of scale

9 009

9 930

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

11 000

0

2

4

6

8

10

12

14

16

18

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

RU

B b

n

%

Ratio of own funds (capital) to risk-weighted assets (Basel III N1.0 ratio)Tier I capital ratio (N1.2)Common equity Tier I capital ratio (N1.1)Own funds (Basel III capital), RUB bn, rhs

12.7

8.5

8.2

11.8

9.2

8.6

13.3

5

10

15

20

25

30

35

40

45

50

less than300 mln

rub

300 - 1bln rub

1-10 blnrub

10 - 25bln rub

25 - 50bln rub

50 - 100bln rub

100 -250 bln

rub

morethan 250bln rub

%

Capital adequacy ratio N1.0 (by capital size)

Capital adequacy ratio N1.0 as of 1.07.2019 (11.8%)

11.8



BANKING SECTOR: SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONSThe Bank of Russia has approved the list of SIFI and buffers for capital adequacy ratios

Колонтитул раздела или подраздела 34

Capital adequacy requirements List of systemically important financial institutions

№ Company name Assets, RUB tn

1 Sberbank 28.8

2 VTB Bank 14.4

3 Gazprombank 6.3

4 Russian Agricultural Bank 3.4

5 Alfa-Bank 3.4

6 Bank FC Otkritie 2.3

7 Credit Bank of Moscow 2.2

8 Promsvyazbank 1.9

9 UniCredit Bank 1.410 Raiffeisenbank 1.3

11 Rosbank 1.2

Minimum Bank of Russia requirements for capital adequacy ratios

Common equity Tier 1 capital ratio (N1.1) 4.50%

Tier 1 capital (N1.2) 6.00%

Total capital adequacy ratio (N1.0) 8.00%

Values of capital buffers 2017 2018 2019Capital concervation buffer 1.25% 1.875% 2.50%*SIFI buffer 0.35% 0.65% 0.65%Countercyclical buffer 0% 0% 0%

Minimum capital adequacy ratios for SIFI 2017 2018 2019N1.1 6.1% 7.0% 7.65%N1.2 7.6% 8.5% 9.15%N1.0 9.6% 10.5% 11.15%

Systemically important financial institutions account for 69% of total assets of the Russian banking sector *Capital conservation buffer will be raised in accordance with the

schedule approved by the Bank of Russia – it will stand at 1.875% from 1January 2019, 2.0% from 1 April 2019, 2.125% from 1 July 2019, 2.25%from 1 October 2019, and 2.5% from 1 January 2020.

Assets as of August 2019

FINANCIAL STABILITYMacroprudential policy aimed at identifying and preventing potential systemic risks

35

Decisionas of August 30, 2019

“The Bank of Russia’s Board of Directors has decided to keep

the countercyclical capital buffer (CCB) rate for Russian

credit institutions at 0% of risk weighted assets…”

“…In the context of moderately growing general credit to the

economy and considering that increased risk ratios are

applied in several lending segments, it has been deemed

unreasonable to set the countercyclical capital buffer

above zero...”

Credit activityThe private sector’s debt burden measured as the debt-to-GDP ratio remains relatively stable as, among other things, debts of non-financial organisations on external liabilities and internal FX loans remain stable. Non-financial organisations total debt on external liabilities, internal loans and debt securities increased by 3.2%1 over the past 12 months as of 1 July 2019.

The household debt burden is rising2: during the first half of the year, the debt service to income ratio increased from 9.9% to 10.4% driven, primarily, by unsecured consumer loans. The debt service to income ratio on retail loans grew from 8.3% to 8.8% over the first six months of 2019 and came close to the peak values of 2014 (9.3%). In order to limit procyclical risks associated with the increase of households’ debt burden, the Bank of Russia applies risk ratio buffers.

Retail lending risksThe annual growth rates of unsecured consumer lending decreased to 24.5%3 as of 1 August 2019 (from 25.3% as of 1 May 2019), but remains high. Increased risk ratio buffers to new unsecured consumer loans issued from 1 October 2019 will be applied depending not only on the weighted average effective interest rate (EIR), but also on the debt burden ratio of an individual.

To mitigate systemic risks associated with mortgage loans with a 10-20% down payment, the Bank of Russia raised risk ratio buffers for newly issued mortgage loans effective from 1 January 2019. This measure resulted in the decrease in the share of loans with down payments ranging from 10 to 20% issued in 2019 Q2. Such loans accounted for 36.7%4 of all mortgage loans (40.9% in 2019 Q1, and 43.2% in 2018 Q4).

Capital adequacyThe capital adequacy (Basel III N1.0 ratio) for the banking sector remains at an acceptable level of 14.2%5 asof 1 July, 2019. The effective macroprudential measures form additional capital stock which accounts for 0.7pp of the banking sector’s capital adequacy6.


1 Adjusted for FX revaluation (exchange rate as of 1 July 2019).2 It is calculated as the ratio of regular household loan repayments to household disposable income. This indicator includes disposable income of all Russian households, including individuals without any loans. Therefore, this indicator is undervalued.3 Credit institutions’ financial statements as per Form 0409115 (Section 3, Credit Exposure: Other Consumer Loans, Grouped into a Homogeneous Loan Portfolio). For credit institutions operating as of the last reporting date, including banks that

underwent restructuring.4 According to the quarterly survey of banks (PJSC Sberbank, VTB Bank (PJSC), GAZPROMBANK (JSC), PJSC ROSBANK, JSC UniCredit Bank, JSC Raiffeisenbank).5 Except for banks undergoing resolution, including with the involvement of the Banking Sector Consolidation Fund.6 If the buffers to risk weights were reduced to zero, the capital adequacy of the banking sector would be higher by 0.7 pp.

SECURITIES MARKET (1)Russia’s financial market has been aligned with best international practices

36

• Euroclear and Clearstream settlement for equities and bonds

• Unified collateral pool for equities, bonds and FX markets

• International clearing system membership; Direct access to FX trading for large corporates

• Local investor base development (individual investment account system, tax incentives, etc.)

• Unified license covering both depository and registrar operations.

• MICEX and RTS merged into the MoscowExchange

• Establishment of a Central SecuritiesDepository and unification of CCP acrossall asset classes

• T+2 settlement on equities, T+1 on OFZs,T+0 on corporate bonds

• Creation of a two-tier Quotation List within the stock exchange listing

• Strong criteria for inclusion in the top-tier Quotation list

• Streamlined dividend rules for SOEs• Corporate standards aligned with best

international practices• Establishing of a Listing Committee at MOEX

• Mandatory audited IFRS for all public companies

• Strengthened regulation to prevent market manipulation and insider trading

• Improved disclosure practices• Report on Corporate Governance Code

compliance in the annual report• Requirement to have a written description of

dividend policy for the top-tier Quotation list• Development of basic standards for

professional market participants activities

Crisis-proven market infrastructure

Upgraded corporate governance

Simplified market access

Increased transparency


SECURITIES MARKET (2)Growing a deeper Russian bond market with strong potential

37

Figure 40: “Bondization” of the Russian financial market Figure 41: Corporate loans vs corporate bonds in Russia, RUB tn

Figure 38 : Volume of the Russian local bond market, RUB tn Figure 39: Volume of the Russian corporate bond market, RUB tn

Source: Moscow Exchange, Cbonds

2.2 2.9 3.1 3.5 3.9 4.7 5.0 5.5 7.2 7.92.53.0 3.6 4.3 5.3

6.68.1

9.2

11.111.9

0

4

8

12

16

20

24

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

OFZ Corporate Bonds

4.75.9 6.7 7.8

9.211.3

13.114.7

18.319.8

2.9 3.2 3.6 4.55.9

9.3 10.2 9.711.5 11.9

2.5 3.0 3.54.2

5.2

6.78.0 8.0

7.6 7.6

0

4

8

12

16

20

24

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

RUB bonds Eurobonds

5.4 6.2 7.18.7

11.1

16.018.2 17.7

19.119.5

8.7 10.3 9.4 9.3 9.2 10.8

15.3

10.6 11.213.2

16.5

21.2

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018

Equity market trading volume, RUB tnBond market trading volume*, RUB tn

81% 80% 77% 73% 71% 71%

19%

20%

23%

27%29% 29%

10

20

30

40

50

60

70

2009 2011 2013 2015 2017 2018

Loans (incl. foreign debt) Corporate bonds (incl. eurobonds)

29

6865

68

35

48

CAGR+20%

CAGR+16%


SECURITIES MARKET (3)Russian OFZ market provides relatively high yields amid investment grade reliability

38

Figure 44: Bond market yields, key rate and RUONIA (% RUB) Figure 45: EM 10Y bond yields (% USD) on the background of credit ratings

Figure 42: Russian OFZ market volume keeps growing Figure 43: Zero-coupon OFZ yield curve, %

Source: Bank of Russia, Moscow Exchange, IMF and World Federation of Exchanges

6.74

8.6

33.1 30.0

10

15

20

25

30

35

40

5.8

6.3

6.8

7.3

7.8

8.3

8.8

1.0

1.1

8

1.0

2.1

8

1.0

3.1

8

1.0

4.1

8

1.0

5.1

8

1.0

6.1

8

1.0

7.1

8

1.0

8.1

8

1.0

9.1

8

1.1

0.1

8

1.1

1.1

8

1.1

2.1

8

1.0

1.1

9

1.0

2.1

9

1.0

3.1

9

1.0

4.1

9

1.0

5.1

9

1.0

6.1

9

1.0

7.1

9

1.0

8.1

9

OFZ market volume, RUB tn, lhs

Share of non-residents holdings, %, rhs

5

7

9

11

13

15

17

19

07

.14

01

.15

07

.15

01

.16

07

.16

01

.17

07

.17

01

.18

07

.18

01

.19

07

.19

Cbonds-GBI RU 5Y YTM eff

RUONIA Index

CBR Key Rate

Russia

BrazilChina

SoA

Turkey

Mexico

PolandHungary

Philippines

Malaysia

KoreaKazakhstan

Indonesia

Peru Chile

Argentina

1.5

3.5

5.5

7.5

9.5

11.5

13.5

B B+ BB- BB BB+ BBB- BBB BBB+ A - A+ AA- AA AA+ AAA

6.00

8.63

7.43

8.75

6.69

7.88

6.0

6.5

7.0

7.5

8.0

8.5

9.0

3m 6m 9m 1 2 3 5 7 10 15 20 30

Years to maturity

April -18 March-19 August -19


Russia’s sovereign ratingsS&P: BBB- (stable), as of 18 Jan 2019Moody’s: Baa3 (stable), as of 08 Feb 2019Fitch: BBB (stable), as of 9 Aug 2019

SECURITIES MARKET (4)Demand for OFZs placements remains sustainably high

39

0

1

2

3

4

5

6

7

0

20

40

60

80

100

120

140

10

.01

.20

18

17

.01

.20

18

24

.01

.20

18

31

.01

.20

18

07

.02

.20

18

14

.02

.20

18

21

.02

.20

18

28

.02

.20

18

07

.03

.20

18

14

.03

.20

18

21

.03

.20

18

28

.03

.20

18

04

.04

.20

18

18

.04

.20

18

25

.04

.20

18

16

.05

.20

18

23

.05

.20

18

30

.05

.20

18

06

.06

.20

18

13

.06

.20

18

20

.06

.20

18

27

.06

.20

18

04

.07

.20

18

11

.07

.20

18

18

.07

.20

18

25

.07

.20

18

01

.08

.20

18

08

.08

.20

18

15

.08

.20

18

29

.08

.20

18

03

.10

.20

18

10

.10

.20

18

17

.10

.20

18

24

.10

.20

18

31

.10

.20

18

07

.11

.20

18

14

.11

.20

18

21

.11

.20

18

28

.11

.20

18

05

.12

.20

18

12

.12

.20

18

19

.12

.20

18

26

.12

.20

18

16

.01

.20

18

23

.01

.20

19

30

.01

.20

19

06

.02

.20

19

13

.02

.20

19

20

.02

.20

19

27

.02

.20

19

06

.03

.20

19

13

.03

.20

19

20

.03

.20

19

27

.03

.20

19

03

.04

.20

19

10

.04

.20

19

17

.04

.20

19

24

.04

.20

19

08

.05

.20

19

15

.05

.20

19

22

.05

.20

19

29

.05

.20

19

05

.06

.20

19

19

.06

.20

19

26

.06

.20

19

03

.07

.20

19

10

.07

.20

19

17

.07

.20

19

24

.07

.20

19

31

.07

.20

19

07

.08

.20

19

14

.08

.20

19

21

.08

.20

19

28

.08

.20

19

Foreign bank subsidiaries Non-credit financial institutions Non-residents

Other banks Systemically-important credit institutions Activity ratio, rhs

Figure 46: OFZ placement dynamics in 2018 and 2019 (RUB bn)

*Starting January 1, 2019 the “activity ratio” calculated as the volume of demand for OFZ to the volume of OFZ supply announced by the Ministry of Finance was replaced by the “meet demand” ratio calculated as the volume of the placement to the volume of demand for OFZ

Source: Bank of Russia, Ministry of Finance, National Settlement Depository


SECURITIES MARKET (5)Russian equity market provides growth potential and attractive dividend yields

40

Figure 49: Russian equities market trading volumes proves stable Figure 50: Dividend yield (12M): Russia vs. EM, %

Figure 47: Russian Equity market cap, bln RUB & bln USD Figure 48: Domestic market capitalization to GDP ratio reflects undervalued Russian financial market (of GDP, %)

Source: Bloomberg, Moscow Exchange, International Monetary Fund and World Federation of Exchanges

48.5%39.5%

0

30

60

90

120

150

180

UK Japan Korea US China Russia Euro area

2016 2017

Russia’s 2018 stock market capitalization to GDP = 39.5%

367

687

0

200

400

600

800

1000

1200

01

.16

03

.16

05

.16

07

.16

09

.16

11

.16

01

.17

03

.17

05

.17

07

.17

09

.17

11

.17

01

.18

03

.18

05

.18

07

.18

09

.18

11

.18

01

.19

03

.19

05

.19

07

.19

15 000

20 000

25 000

30 000

35 000

40 000

45 000Market cap, bln RUB, lhs Market cap, bln USD, rhs

5.13

7.46

3.02

2.98

1.5

2.5

3.5

4.5

5.5

6.5

7.5

01

.16

04

.16

07

.16

10

.16

02

.17

05

.17

08

.17

12

.17

03

.18

06

.18

09

.18

01

.19

04

.19

07

.19

Russia Emerging markets

2.5

3.0

1.664

2.766

1.600

1.800

2.000

2.200

2.400

2.600

2.800

0.5

1

1.5

2

2.5

3

3.5

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

Trading volumes, RUB tn, lhs MOEX Index, rhs


SECURITIES MARKET (6)Russian equity market remains undervalued despite strong performance in recent years

41

Figure 51: Russian MSCI index vs EM peers (05.01.15 = 100%) Figure 52: Forward P/E ratio (12m), MSCI Russia vs MSCI EM

Source: Bloomberg

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

31

.12

.14

31

.05

.15

31

.10

.15

31

.03

.16

31

.08

.16

31

.01

.17

30

.06

.17

30

.11

.17

30

.04

.18

30

.09

.18

28

.02

.19

31

.07

.19

Russia India Brazil Turkey

China South Africa EMEA

5.6

12.3

-54%

-65%

-60%

-55%

-50%

-45%

-40%

2

4

6

8

10

12

14

16

31

.12

.14

31

.05

.15

31

.10

.15

31

.03

.16

31

.08

.16

31

.01

.17

30

.06

.17

30

.11

.17

30

.04

.18

30

.09

.18

28

.02

.19

31

.07

.19

MSCI Russia, lhs MSCI EM, lhs Russia to EM P/E discount, rhs


SECURITIES MARKET (7)Moscow Exchange group offers the best infrastructure in its class

42

National Clearing Centre

CCP, risk and collateral management, clearing,

risk netting

National Settlement Depository

CSD, settlement, depository, safekeeping,

repository

TRADING

CLEARING

SETTLEMENT

MOEX captures the entire value chain for end-customers, offering a one-stop shop for listing,risk management, market data, multi-assettrading, clearing settlement and custody

MOEX is strategically positioned to benefitfrom the development of Russia’s capitalmarkets in the coming years

Fully vertically integrated infrastructure withregulation and oversight by theBank of Russia

Eligible collateral to trade any asset class

Foreign investors have Direct Market Access(DMA), Sponsored Market Access (SMA) andInternational Clearing Membership (ICM)services at their disposal

Moscow Exchange

listing and electronic trading, including DMA

services

Source: Moscow Exchange


SECURITIES MARKET (8)Russian financial market has necessary infrastructure and regulation for trading OTC

43


Variety of instruments and service providers

Russia adheres to G20 decisions in respect of OTC derivatives

reforms

Non-financial counterparties have access to a broad range of hedginginstruments offered by banks (including structured products)

National Settlement Depository provides collateral managementservices (repo)

Robust legal protection in place

Enforceability of close-out netting in derivatives and repo markets isconfirmed by relevant legal opinions (ISDA, ICMA)

Russian standard documentation developed by SROs and approved bythe Bank of Russia

Trade reporting to repositories (two authorized repositories available)

National Clearing Centre provides clearing services for OTC trades


SECURITIES MARKET (9)Rapidly developing retail market with strong tax incentives and accelerating FinTech

44

2.6 million retail investors were registered withthe Moscow Exchange at the end of June 2019

More than 219 000 retail investorswere reported as “active” traders

Corporate bonds with yield of under12.75% became tax-exempt onJanuary 1, 2018

Capital gains on securities held for

more than 3 years are tax-exempt

Tax deductions for IIA type A – maxRUB 52 000; for IIA type B – at the rateof investment income

Recent regulatory changes

Retail investors allowed to openbrokerage and management accountsonline

Individual Investment Accounts forprivate investors since 2015.• RUB 1 mln – max sum to invest in a year.

• More than 825k accounts opened as of May

2019


57 946

78 63974 911

109 538

190 235

219 409

28 068 34 19644 860 46 285

55 476

57 064

895 8 03815 159 25 461

60 65170 047

0

50 000

100 000

150 000

200 000

250 000

December2013

December2014

December2015

December2017

December2018

June 2019

Equities market Derivatives market FX market

Figure 53: Number of active retail client accounts


CORPORATE GOVERNANCENew corporate governance standards reflect best international practices

45


Only ratings by approved Russian rating agencies will beconsidered valid for listing requirements for Russianissuers` bonds

Corporate actions reform

Information on corporate actions cascaded toshareholders from issuer through CSD and nominees

E-proxy voting and E-voting platform for shareholdershas been developed

A number of Russian companies have alreadyimplemented an online voting system in 2017

E-voting for bondholders has been implemented andsuccessfully tested

Listing reform on Moscow Exchange

Simplified listing structure: 2 quotation lists and 1 non-quotation list instead of a 6-tier system

Stricter corporate governance criteria for inclusion inthe top-tier list

Stricter requirements for Directors to be consideredindependent

Next stage 2019

Blockchain technology

NSD used a blockchain-based settlement platform tocomplete an inaugural placement ofa RUB 500 mln bond issue in 2017

In 2018 first Russian bonds via smart contracts wereissued for a total sum of RUB 750 mln

CBR corporate governance report: annual monitoring of corporate governance practice and publication of the report on the CBR official site (only in Russian)

Corporate governance

JSC Law amended July 2018: Strengthening the role of the Board of Directors in JSC Mandatory risk-management, internal control in

public companies Mandatory audit committees and internal audit

functions in public companies (starting July 2020) Disclosure reform

Securities

New types of securities – structured bonds, perpetualbonds, priority dividends non-voting preferred shares


http://cbr.ru/analytics/?PrtId=overview_practices

COUNTERING MALPRACTICEBank of Russia supervises conduct of financial market participants to promote fair competition

46

•Bank of Russia improves continuous monitoring of on-exchange trading for the purpose of maintaining financial stability and preventing system shocks caused by misconduct

• Bank of Russia successfully eliminates competitive advantages of unlicensed firms by decreasing their number. Since 2015 detriment caused by financial pyramids decreased by more than 5x times

•In 2015 Bank of Russia became a signatory to the IOSCO MMoU

•Intense cooperation with foreign financial market regulators in terms of information exchange, including confidential information

•Elaboration on international initiatives

• Bank of Russia has implemented an effective system for countering malpractice includingmarket manipulation and insider trading, aimed at ensuring investors’ equality and fair pricing .

Insider trading and market

manipulation

International cooperation

Enhanced consolidated

market analysis

Unlicensed firms and Pyramid Scheme


INVESTMENT FUNDSLocal institutional investor base: the potential of investment funds

47

Figure 56: Number of investments funds in Russia by the type Figure 57: Breakdown of investment funds’ assets by the type (as of December 31, 2018)

Figure 54: Majority of savings in Russia is held on bank deposits and in cash*

Figure 55: Assets of investments funds in Russia (RUB tn)

* As of the end of 2017Source: World Bank, IMF, Bank of Russia, Moscow Exchange

14%24%

39% 32%20% 18%

41%59%

69%

13%

32%

61% 37%

23%

25%21%

6%

27%

6%

51%

12% 23%

42%50% 61%

53%

13% 12%

USA UK Germany Italy Brazil Mexico China India Russia

Bank deposits Cash Insurance and pension assets Securities Other

2.5

3.7

3.1%

3.5%

3.1%

3.2%

3.3%

3.4%

3.5%

3.6%

3.7%

1.6

2.0

2.4

2.8

3.2

3.6

4.0

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

Assets, RUB tn, lhs Assets to GDP, %, rhs

1135 1150 1131 1132 1136 1131 1117 1 109 1 111 1128

353 356228 332 331 327 325 312 303 268

46 4743

36 37 39 43 43 42 401 4

09.1

6

12.1

6

03.1

7

06.1

7

09.1

7

12.1

7

03.1

8

06.1

8

09.1

8

12.1

8

Closed-end Open-end Interval ETF

1534 1497150415001553 1402 1485 1464 1456 1440

9%

20%

6%

1%5%25%

18%

16%

Cash

Equities

Bonds

Government bonds

Foreign securities

Real estate

Authorized capital

Other


NON-STATE PENSION FUNDSLocal institutional investor base: the potential of non-state pension funds

48


Figure 58: Pension assets in Russia (RUB tn)

Figure 59: Pension system asset allocation (as of December 31, 2018, %)

Bank of Russia became a regulator of the pensionsystem in 2013. Since then a number of changeshas been adopted to strengthen the non-statepension system:

‘one-year non-loss’ rule was extended to ‘five-year non-loss’ rule

stress-testing mechanism introducedcustomers are now encouraged to stay with the

same fund for not less than 5 years since 2014 the Deposit Insurance Agency (DIA)

guarantees the nominal value of mandatorysavings

non-state pension funds are to bear fiduciaryresponsibility (since March 18, 2018)

non-state pension funds are to disclose theirinvestment portfolios

corporatisation of non-governmental pensionfunds (NPFs) completed

work on individual pension accounts reform isin progress

1.90 1.94 2.06 2.02 1.91 1.78

1.09 1.13 1.71 2.15 2.47 2.64 0.83 0.90 0.99 1.11 1.21 1.25

2013 2014 2015 2016 2017 2018

Non-state pension funds. Reserves

Non-state pension funds. Mandatory savings

State pension fund. Mandatory savings

3.82 3.974.76

5.28 5.595.67

21%6% 8%

0%9% 16%

36% 44% 38%

38% 35%14%

4% 5%23%

State pension fund NPFs Mandatory savings NPFs Reserves

Cash Equities Corporate bonds Government bonds Other


INSURANCELocal institutional investor base: the potential of insurance market

49

Figure 62: Premium structure in 2018 shows high level of market diversification

Figure 63: In 2018 market remained highly competitive with the Herfindahl-Hirschman Index equal to 550.6

Figure 60: Premium volume is gradually growing Figure 61: Assets hit 2.8% of GDP


266.4

385.7

112.9

153.51.3

1.4

1.01.11.21.31.41.51.61.7

50100150200250300350400

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

Premiums, RUB bn, lhs

Payment of claims, RUB bn, lhs

Premiums as % of GDP, rhs

1 609.42 918.9

943.3

1 831.12.0

2.8

1.31.51.82.02.32.52.83.0

0450900

1 3501 8002 2502 7003 150

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

Assets, RUB bn, lhs

Reserves, RUB bn, lhs

Assets as % of GDP, rhs

62.5

76.7

65.4

80.6

69.7

77.5

0 20 40 60 80 100

Top-10

Top-20

Capital, % Premiums, % Assets, %

31%

6%

10%11%

15%

27%

Life insurance

Corporate propertyinsurancePrivate medicalinsuranceMotor car insurance

Compulsory motor TPLinsuranceOther


COMMODITIESUrals futures trading launched to set a price benchmark for Russian export oil

50

Deliverable SPIMEX Urals Crude Futures contract is a new oil pricingmechanism allowing a direct quotation of exported Russian oil withoutreference to other crude oil grades traded on global energy markets

Transparent pricing process is based on exchange-traded futures contractsreflecting the supply-and-demand equilibrium reached on the back of a largenumber of trades concluded on the exchange by a wide range of marketparticipants and setting an arm’s length price for the relevant commodity

Deliverable SPIMEX Urals Crude Futures contract trading was launched on 29November 2016

Access to the SPIMEX futures contract trades is granted to Russian andforeign legal entities as well as to Russian individual entrepreneurs. Only legalentities (both Russian residents and non-residents) are able to conductphysical deliveries of crude oil

The SPIMEX Urals Crude Futures contract is settled by physical delivery uponexpiration. Such a futures contract has a direct link with the crude oil spotmarket and prevents price manipulation. Physical delivery of crude oil underthe contract is effected against positions opened as of the relevant contractexpiration date


MICROFINANCEMicrofinance is a vital part of financial system complementing banks to provide better financial inclusion

51

Microfinance organizations(MFOs)

Consumer credit cooperatives

Credit Housing communities

Pawnbrokers

Agricultural credit cooperatives

Microfinance institutions (MFIs) provide financial services for

customers with no access to banking products, service regions

with an insufficient bank presence, offer financial products missing

from bank product lines, boost financial awareness and help

clients build their credit histories.

CBR keeps a state register of MFIs and supervises MFIs directly

and via SROs. Currently there are about 15 600 MFI companies.

Roughly 25% of the entire MFO microloan portfolio are microloansto small to medium enterprises (bearing 8% interest rate thanks tostate support via MFOs).

Payday Loans, i.e. small, short-term unsecured loans (up to RUB30k for 30 days) at high rates, are not a development priority andaccount for some 20% of the entire MFO microloan portfolio.

MFIs


FINTECH (1)Russia provides a favorable environment for FinTech development

52

Key areas of development

1. Legal regulation of FinTech, including protection of consumer rights and security of personal data

2. Development of digital technologies in the financial market and development of digital infrastructure

3. Transition to electronic interaction between the Bank of Russia, government, market participants and their clients

4. “Regulatory Sandbox” for experimentation with innovative financial technologies, products and services

5. Cooperation within the Eurasian Economic Union and development of single payment area for member states

6. Ensuring technological safety and sustainability in FinTech implementation

7. Development of human resources in the financial market

Facilitate the competition in the financial market

Enhance accessibility, quality and range of financial services

Lower risks and costs in the financial market

Advance the level of competitiveness of Russian technologies

Goals of the Bank of Russia as a high-tech regulator


FINTECH (2)Russia provides a favorable environment for FinTech development

53

Implementation of new technological

solutions for the development of the

Russian financial market

Promotion of digitalization of the

Russian economy

Digital identification

Distributed ledger technology

Faster payment system

Open API

Big Data

Main goals Main activities (2017-2018)

Established on 28 December 2016 by the Bank of Russia

with participation of the largest financial institutions


MARKETPLACEShaping future of financial services experience in Russia

54

New system for online sales of financial products

Aimed at replacing traditional sales channels with websites and smartphone apps which will enable customers to compare multiple financial product offers

CBR arranges the regulatory environment necessary for the project

CustomersEqual access to financial market

Competition

Development of competitive environment

and financial services optimization

TechnologiesOpen API and fast payments system


PAYMENT INFRASTRUCTURE (1)Bank of Russia Payment System

55

Money transfer services are provided to:

all credit institutions (financial market infrastructure included)

Russia’s Federal Treasury and its agencies

other Bank of Russia clients

Average daily figures: 6.4 mln payments, RUB 6.9 tn

84% of funds are transferred via the real-time service

New liquidity management tools, future value date settlement functionality, cash-pooling services for Federal Treasury and multibranch banks introduced

Transfer timeframe is adapted to Russia’s 11 time zones - system operates from 1 a.m.to 9 p.m., Moscow time.

The Faster Payments System (FPS), launched on 28 January 2019, is set to enableinstant C2C interbank transfers 24/7/365 using mobile phone number. At the nextstage – C2B (customer–to-business) and C2G (customer-to-government) payments tobe included


PAYMENT INFRASTRUCTURE (2)Advancing supervision and oversight to ensure stable development of the payment infrastructure

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Supervision of the paymentinfrastructure: monitoring organisations’compliance with the Russian law. Appliesboth to banking and non-bankinginstitutions providing paymentinfrastructure and payment services

Oversight of the payment infrastructure:improving institutions’ operationsfollowing the Bank of Russiarecommendations based uponinternational best practices

Bank of Russia international cooperationin supervision and oversight of thepayment infrastructure

36 payment systems and more than 400 institutions supervised within the National Payment System (NPS)

Objects supervised for compliance with CPMI/IOSCO Principles for Financial Market Infrastructure (PFMI): 2

systemically important payment systems, 4 socially important payment systems

NPS supervision is risk-oriented. Proportionate remote supervision approach is being introduced to the NPS

Figures for early 2019 :

High PFMI compliance ratings. NPS operators implement approved action plans based on the Bank

of Russia recommendations


NATIONAL PAYMENT CARDS SYSTEMSetting the standards for the payment industry to provide convenient and stable services

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Russian national payment system “Mir” was created on 23 July 2014 Operator of Mir Card Payment System is National Card Payment System Joint-Stock

Company, 100% of its shares belong to the Bank of Russia More than 53 mln “Mir” payment cards were issued by year end 2018 in Russia Co-badging projects with international payment systems: Maestro, JCB, AmEx and

UnionPay Support of mobile payment service Samsung Pay Mobile payments service MirPay is launched PayPass system has been successfully implemented

Payment system “Mir” launched a loyalty program which allows card holders to receivecashback

“Mir” payment cards are accepted in the Republic of Armenia, Kyrgyz Republic, as wellas in the infrastructure of VTB Bank in the Republic of Kazakhstan and the Republic ofBelarus


CONSUMER PROTECTIONFinancial consumer and investor protection as one of priorities for further financial market development

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KEY FINANCIAL CONSUMER PROTECTION WORKSTREAMS

Consumer and investor complaints handling

Conduct supervisionmodel

Setting requirements for financial organizations in order

to improve consumer and investor protection

Dispute resolution (ombudsman)

Financial awareness improvement

Disclosure requirements for consumers and

investors

Disclosure requirements for information on risks

Differentiation of consumer protection

requirements


FINANCIAL INCLUSIONStrong international background helps to promote financial inclusion

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ALLIANCE FOR

FINANCIAL INCLUSION (AFI)

‒ The global knowledge exchange network empoweringpolicymakers to increase access to quality financialservices for the less well-off communities andhouseholds

‒ The Bank of Russia became a member of AFI inFebruary 2014

‒ In September 2014 the Bank of Russia joined the MayaDeclaration setting up the priorities for AFI memberson financial inclusion

‒ In September 2015 the Bank of Russia joined theMaputo Accord to improve funding accessibility forSMEs

‒ The Bank of Russia and AFI co-hosted the ‘Financialinclusion and shadow banking: innovation andproportional regulation for balanced growth’conference in November 2015

‒ In June 2016 the Bank of Russia hosted the AFI GSPWGmeeting.

‒ CBR hosted the 2018 AFI Global Policy Forum

‒ Improving financial inclusion for people and SMEs is one of financial marketdevelopment priorities for 2016-2018

‒ The Bank of Russia annually publishes financial inclusion indicators and theReport on Financial Inclusion in Russia (with supply-side and demand-sidedata starting from 2015)

‒ The technical note on financial inclusion was prepared in the context of ajoint WB / IMF FSAP mission in Russia during February-March 2016; thenote was published in May 2016

‒ Early in 2018 the Bank of Russia launched the Financial Inclusion Strategy inRussia for the period of 2018-2020

Financial Inclusion Promotion by the Bank of Russia

G20 GLOBAL PARTNERSHIP FOR FINANCIAL

INCLUSION (GPFI)‒ Acts as an inclusive platform for G20 countries, non-members and other parties for

knowledge and experience sharing, policy advocacy and coordination in promotingfinancial inclusion

‒ Russia is an original GPFI member since November 2010

‒ Endorsed the ‘original’ FIAP in 2010 and the ‘updated’ FIAP in 2014 and 2017

‒ G20 – World Bank – OECD conference on empowering consumers of financialproducts and services was hosted in Moscow in June 2013

‒ The third annual GPFI Forum was held in St. Petersburg in 2013


AML/CFTBank of Russia maintains AML/CFT supervision of credit and non-credit financial institutions

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Key measures taken in 2008-2013:

Enhancing corporate transparency by introducing beneficial ownership requirements to the AML/CFT Law

Prohibiting credit institutions from opening and maintaining anonymous accounts or accounts in fictitious names

Addressing certain shortcomings in the criminalization of terrorist financing

Amending legislation to prevent criminals from becoming major shareholders in financial institutions

Strengthening instruments to freeze terrorist assets domestically or on request of other countries

Abolishing the threshold which decriminalized self-laundering of amounts lower than RUB 6 mln and which wasnot in compliance with the FATF Recommendations

2008The FATF placed Russian Federation in the regular follow-up process

2013The FATF recognized that Russia

could be removed from the regular follow-up process

Russian AML/CFT law is based on International Standards on Combating Money Laundering (FATF Recommendations)

2018 – 20194th round of mutual evaluation, joint

FATF/MONEYVAL/EAG evaluation of Russia


CYBERSECURITYKey initiatives in information security and cybersecurity

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Key avenues of cooperation in the sphere of information security

Establishing institutional and technicalframework for dynamic cooperation betweenthe common financial market regulators andparticipants, building upon the Financial SectorComputer Emergency Response Team(FinCERT) of the Bank of Russia

Enabling trusted electronic operations in theincreasingly digitalised common financialmarket

Formulating unified standardised approachesto information security, cyber resilience andsupervising related risks

Policy coordination and unifying themechanisms of strong customer authenticationfor financial transactions and money transfers

Countering international and cross-border crime

Compiling a general register of most typical cyber threats and computer

attack methods

Addressing the rise in money withdrawals via illegal cross-border

transactions

Combatting fraud in financial e-services provided via websites registered in foreign DNS zones


INVESTOR CONTACTS AND REGULAR MEETINGS SCHEDULE FOR 2019

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International Cooperation DepartmentTel.: +7 (495) 771-90-68

Email: [email protected]: cbr.ru/eng/today/irp/

July 19-26 Quiet period

July 26 Board of Directors meeting on monetary policy

August 30 –

September 6

Quiet period

September 6 Board of Directors meeting on monetary policy

Release of the Monetary Policy Report

September 11 Conference call with institutional investors

October 11-13* Ad-hoc meetings with investors on the sidelines of

the IMF/WB meetings

October 18-25 Quiet period

October 25 Board of Directors meeting on monetary policy

December 6-13 Quiet period

December 13 Board of Directors meeting on monetary policy


December 18 Conference call with institutional investors

February 1-8 Quiet period

February 8 Board of Directors meeting on monetary policy

March 15-22 Quiet period

March 22Board of Directors meeting on monetary policy


March 26 Conference call with institutional investors

April 10-12*Ad-hoc meetings with investors on the sidelines of the

IMF/WB meetings

April 19-26 Quiet period

April 26 Board of Directors meeting on monetary policy

June 6-8 Saint Petersburg International Economic Forum

June 7-14 Quiet period

June 14Board of Directors meeting on monetary policy


June 19 Conference call with institutional investors

*tbc

mailto:[email protected]

http://cbr.ru/eng/today/irp/

RUSSIAN FINANCIAL SECTOR I · 2019-10-04 · Newsletter –11 Key indicators –14 Macrofinance...

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