Sources of finance other thank bank loans should be promoted

2 july 2018

"The structure of the bonds market should move towards being more balanced," said the Deputy Head of the Analytical Center Gleb Pokatovich opening a roundtable on the growth prospects in corporate bonds for the private business in a financial market with falling bank loan interest rates.

According to Mr Pokatovich, companies should be offered development mechanisms that do not involve state support.

"Improvements in the macroeconomic conditions have not brought private business back into the corporate bonds market," stated Daniil Nametkin, Deputy Head of the Department for Expert Analytics. "Today the corporate bonds market is not an effective mechanism for reallocating financial resources in the economy."

Banks have become the main beneficiary of the monetary anti-inflationary measures put in place in 2015-2016, which allowed them to significantly expand their liabilities, Mr Nametkin said. The cost of bank loans for the corporate sector has gone down from 13% in 2007 to 8.5% in 2018. Meanwhile, bond issues are becoming less and less accessible to 2rd and 3rd tier companies in the non-financial sector, even though the returns on bonds in 2007 and 2017 are comparable. These kinds of companies have become far less active in the Russian market of corporate bonds as they have lost interest in bond issues.

The expert is of the opinion that the problem of the lack of alternatives to bank loans needs to be addressed and mechanisms should be developed to support long term financing.

Pyotr Lomakin, Deputy Head of the Behavioral Supervision in the Market of Securities, Collective Investments and Corporate Relations of the Service for Consumer Rights Protection and Ensuring Accessibility of Financial Services of the Bank of Russia, supported the notion that the corporate bonds market should be developed. "It's a simple tool that investors must have access to," Mr Lomakin said.

"Russia lags far behind the big twenty nations across all types of capital markets, and especially in stocks and bonds," said Sergey Penkin, Head of the Department for Research of Regulatory Impacts of the Association of Russian Banks. "Our bonds market is very small and that's one reason we're far behind the other countries on the level of investments in fixed assets." According to the expert, source of finance other than bank loans should be developed to encourage companies to more actively engage in financial markets. "We've got to change the very paradigm of our financial markets, their capitalization must correspond to the size of our economy and its needs," Mr Penkin was quoted as saying.

The roundtable participants put forward proposals for how to improve the situation in the Russian capital market.