Money and Credit magazine has published an article penned by the Analytical Center's experts Daniil Nametkin and Natalia Safina, and titled Key Problems of Financial Stability. Authors identify the key measures aimed at resolving some of the structural problems the Russian banking sector is plagued by, the prerequisite conditions and effective tools needed to ensure stability of financial companies.
Even though the Russian banking sector is showing some signs of stabilization, it is not pulled out of the crisis just yet. On the one hand, in the past several months the banking sector as a whole has been generating sustained profit. However, the bulk of this profit has been made by a handful of major banks. In addition, even though the financial performance has been improving, the quality of the assets held by the banks keeps deteriorating: the share of total overdue debt is increasing, which is putting additional pressure on the already weakened capital of monoline retail banks.
In the future, these negative trends are going to expedite the consolidation of the Russian banking sector. On the one hand, mergers and acquisitions allow major banks to diversify their assets and clients, but, on the other hand, this may put additional pressure on the capital of banks charged with the restructuring of weaker banks, which will also bring down their credit ratings.
Taking into account the probability that real household incomes may fall further and the high household debt, we cannot expect retail loans to pick up anytime soon. It is for this reason that banks working in a broad range of subsectors are going to have to survive this crisis by entering new market niches or by changing their current business model in order to diversify risks and reduce the load on capital.
Measures to support the banking sector, based on the easing of regulatory requirements, may have an adverse effect on the industry if they were to be extended further. The risk the whole banking system gets exposed to because of this will increase as the Basel III standards are prepared and introduced as they will impose stricter requirements on the capital of banks and impose new liquidity requirements. This will inevitably lead to the introduction of stricter requirements on banks’ capital.
Thus we can expect that banks that cannot cope with the sharp decline in the quality of their assets will continue to leave the market as the crisis in the economy gets worse. In this situation, banks undergoing restructuring or having their licenses revoked, or getting their capital replenished, including capital replenishments by the regulator, are going to remain a fairly common occurrence throughout 2016 and may even affect some fairly larger banks.
For more see the article Key Problems of Financial Stability.