CORRECT: Cbanker: Only better investment climate to help Russian growth

(Clarifies information in paragraph 8 to say that regulator plans to raise ratios of reserves against possible losses on loans for merger, acquisition deals, not mandatory reserves against deals)

ST. PETERSBURG, Jul 4 (PRIME) -- The Russian economy will grow only if the country improves its investment climate, Central Bank Chairwoman Elvira Nabiullina said on Thursday during the International Financial Congress conference.

“The main thing we need for economic growth is a drastic improvement in the investment climate. We cannot try to switch the focus of economic policy, to draw attention to non-priority factors…We have to create incentives for business initiatives. It is business that creates economic growth, not the government. Government investment cannot substitute private investment,” she said.

Today, Russia is mostly protected from external risks and is prepared to new spikes of volatility, she said.

“On the part of the central bank, we also conducted our work to purge the financial system, to toughen oversight and regulation, to improve instruments that support financial stability. This has contributed to the fact that our country today is largely protected from external risks and prepared to new possible volatility,” she said.

But external risks are not the major threat for Russia. Economic growth is low, businesses see no prospects, household incomes are not growing, and Russians don’t see that stability improve their living standards, she said.

The regulator also has no reasons to think that the external situation will change any time soon. “Yes, there will be fluctuations up or down connected to the new actions and agreements of the countries in the trade war, to the attempts of central banks to cope with the most negative factors, or to new populism in politics, with geopolitical aggravations,” but no serious improvement will happen, she said.

Nevertheless, the situation is not that bad. “Oil prices are slightly higher than we expected, and our country is still interesting for the global markets of capital,” she added.

BANKING SECTOR

The central bank also plans to raise the ratios of reserves against possible losses on loans issued by banks for merger and acquisition deals of companies until the end of 2019, Nabiullina said.

“So far, banks are very eager to issue loans for merger and acquisition deals. They credit redistribution of property, not expansion of activity, and they face problems with getting the money back more and more often,” she said.

The banks asked the regulator to postpone toughening of the ratios, but the central bank saw no changes in reserves over the time, so it will raise the ratios until the end of 2019. The reserve ratio under should amount to 21%, while collateral should cut it to 10%. Improvement of credit quality would be possible only if a borrower shows good financial results, then the reserve ratio would be cut to 5%, she said.

The regulator also plans to discuss creation of a self-regulated organization in the banking sector. As platform solutions develop, banks are becoming the sales major channel for financial products, and non-controllable growth in the variety of instruments may lead to disappointments among clients and to disruption of trust in the financial sector, she said.

The “regulation circle will be complete” if all agents that sell financial products adhere to standards. “The issue arises about self-regulated organizations in the banking sector…There is a crossroad here that we want to discuss with the market. We can think about associations partially fulfilling functions of self-regulated organizations…Or we can create a full-scale institution of self-regulations in the banking sector,” she said.

OTHER IDEAS

The central bank has started thinking about opening direct access to operations with the regulator to fintech companies, Nabiullina said.

“Who should have access to the money of the central bank? Only banks or fintech companies, any companies that provide financial services, as well? For instance, Switzerland issues licenses for fintech companies, Hong Kong licenses virtual banks, and the Bank of England started working with the new players under the rules of the financial market. We are starting to think about opening direct access to operations with the central bank for fintech,” she said.

The Bank of Russia also wants to amend the regulation of financial market. Currently, banks, insurers, micro financing companies are regulated through a list of demands to each firm, while professional players of the stock market, institutions of collective investment, and trade organizations are regulated through a list of demands to their operations.

“The tendency of market development…pushes us toward switching the regulation focus from demands to companies to demands to the operations they carry out. If a company wants to provide financial services, it should get a license for corresponding activity from us,” she said.

End