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Financial university under the government of the Russian Federation,

Banking system and its role in national economy of the Russian Federation

Kuznetsova E.A., student of IFF 2-3ch group

The banking system of any country is a key element of its monetary system, and recognized as an important factor of economic development, contributing to the development of the entire state. The prospects for sustained development of the country, its position in the international arena, the wellbeing of citizens largely depend on the state of the banking system.

Banks appeared in ancient times as firms specializing in provision special kinds of services, such as the storage of savings and granting credits. Over time, banks have also mastered the activities related to the organization of payments for goods purchased and sold within the country and on the world market. It speeded up payments and increased their reliability, which had a positive impact on the development of trade and the world economy as a whole.

Nowadays banks are an integral feature of modern economy, their activities are closely linked to the needs of reproduction. Being in the center of economic life, serving the interests of manufacturers, banks are the link between industry and trade, agriculture and population. Conducting monetary settlements, crediting the economy, acting as intermediaries in the redistribution of capital, banks significantly increase overall production efficiency and promote the growth of labor productivity. bank banking financial monetary

The role of the banking system in a modern market economy is enormous. All the changes taking place in it, one way or another affect the whole economy. Proper organization of the banking system is necessary for the normal functioning of the economy. Creating a stable, flexible and efficient banking infrastructure - is one of the most important (and extremely difficult) tasks for the economic development of the Russian Federation.

The purpose of this work is to study banks' essence, their place and role in the country's financial system.

To achieve this goal it is necessary to resolve the following problems:

- To examine the nature and structure of the banking system

- To consider the views of modern banks and banking system in Russia

- To examine functions of the Central Bank

- To consider the principles of monetary policy in the Russian Federation.

The object of study is the banking system of the Russian Federation.

The concept and structure of the Russian banking system

The banking system of the Russian Federation is a set of interrelated elements, which includes banking infrastructure and banking legislation, the Central Bank and credit institutions, consisting of commercial banks and other credit-settlement organizations, sometimes united under the holding companies. Federal Law of December 2, 1990 "On Banks and Banking Activity" defines the concept of banking system as follows: the Russian banking system comprises the Bank of Russia, credit institutions, as well as branches and representative offices of foreign banks.

The Russian banking system has a two-tier structure The structure of the Russian Federation banking system is shown in appendix 1. The first level is represented by the Central Bank of the Russian Federation and the second level by banks and non-bank organizations. To start with, Central Bank is a state credit institution, the main function of which is to issue the national currency and to ensure their purchasing power sustainability. Also a lot of other functions of CB exist, for example:

• Monetary and credit regulation of the economy;

• Storage of the State gold-currency reserves;

• Management of government accounts;

• Storage of other financial institutions reserve funds;

• Crediting commercial banks;

• Control under credit and financial institutions.

The Central Bank of Russia is the main bank of the country. Its status is regulated by the

Constitution of the Russian Federation, the Federal Law № 86-FZ dated 10 July 2002 "On the

Central Bank of the Russian Federation ", the Federal Law of December 2, 1990 "On Banks and Banking Activities". The CB is a legal entity. It has its own stamp with the State National Emblem of the Russian Federation and its name.

The authorized capital and other property of the Bank of Russia are federal property.

The main objectives of the Central Bank:

• To protect and ensure the stability of ruble;

• To develop and strength banking system of the Russian Federation;

• To ensure efficient and uninterrupted functioning of the payment system.

The Central Bank forms a unified centralized system with a vertical management structure. The system of CB consists of central office, regional branches, cash settlement centers, computer centers, field offices, educational institutions and other enterprises, institutions and organizations, including the Security subdivision and the Russian association of collection, which are necessary for the implementation of the Central Bank activity. The relationship between Central Bank and commercial banks, other credit institutions is defined by acting laws. On the one hand, the Bank of Russia is endowed with broad powers to manage the monetary system of the country, and on the other - it is a legal entity, which is entering into certain civil law relations with credit institutions. Thus, the Bank of Russia has a dual legal nature. At the same time it is - government body of special competence and legal entity that carrying out economic activity.

The second level of the banking system includes credit institutions. These include bank and nonbank credit organizations, Russian banks with foreign capital and branches of foreign banks. The main purpose of credit institutions - is to conduct banking transactions on credit, cash and deposit customer service and actors of economic relations.

• Credit organization- a legal entity, which for profit as the main purpose of its activity on the basis of a special permission (license) of the Central Bank, has a right to conduct banking operations stipulated by the Law on Banks.

• Non-bank credit organization (NCO) - a credit institution that has a right to conduct separate banking operations. Permissible combinations of banking operations for non-bank credit institutions are established by the Bank of Russia. NCOs can carry out payment, deposit, loan transactions, as well as collection of cash, bills, payment and settlement documents.

Russian banks are not isolated from the external environment. To fulfill its economic functions they demand a number of important services provided by the banking infrastructure. The value of the banking infrastructure in recent years increases more and more. Under this concept it is understood a set of institutions that form necessary conditions for implementation banking activities, and promote the creation and bringing banking services to their customers.

Examples of banking infrastructure:

• Deposit insurance system, which provide assurance of safety of citizens' deposits in banks in the framework of rules established by legislation;

• Independent payment systems, assisting in the implementation of transactions between organizations and banks, such as SWIFT, and payment transactions through plastic cards, such as VISA, MasterCard;

• Auditing organizations that provide independent verification of commercial banks and the Central Bank activity and the confirmation of the financial statements;

• Consulting and legal organizations, which help banks to develop their businesses, also represent their interests in the interaction with customers and authorities.

The influence of the Russian banking system on the functioning of the real economy sector The banking sector has been and remains a major source of funding for both operational and strategic activities of the enterprise. The dynamics of the organization is largely provided by the sources of borrowing. They are relatively easy to obtain for certain purposes, choose a convenient repayment schedule and duration. However, there are some problems that reduce the demand for bank loans. One of them is a high interest rate. Companies with a low level of profitability cannot afford such a credit.

On the relationship between the banking and real sectors of the economy, there are two diametrically opposite points of view. The first option is based on the approval "the state of the banking system has a significant impact on the functioning of the real economy."[4]The banking sector is the main source of financing for companies in Russia. The formation of a positive trend of economic development depends on the degree of availability of banking services. The opposite opinion is that "today banks do not play a significant role in financing the real sector". [10]Their task is to accumulate temporarily free funds of population and refer them to finance long-term investment projects.

Statistical data of banking system functioning

A positive trend of economic development depends on the degree of availability of banking services. Particularly striking example of this situation is the 2008 financial crisis. Under the external influence of the crisis internal problems of the banks have been revealed, in most cases they are often associated with excessively risky policy of their leadership. So, the banks had problems with liquidity. Interest on loans increased, while deposits declined, which, of course, affected the real economy. For a lot of companies it became impossible to get a credit, they began to focus on their own sources of funding. However, the amount of own funds was very limited, that is why stagnation appeared in the development of the organization. The result of refocusing on own funds was the reduction of investments in main capital in 2009 by 16.2% compared to 2008 The data was taken from the official site of Russian statistics . [13]

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The amount of credit as a source of financing decreased by 21.4%

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Financial distress of those time showed that "the financial crisis, as a rule, is a consequence of the economic crisis, however, in today world can become the root cause of it." Therefore, the banking system needs to maintain uninterrupted performance of its functions, providing liquidity and stability.

Another crisis of 2014 has revealed the vulnerability of the financial and banking system, its sensitivity to negative external influences that required rethinking its role and place in the economy in terms of globalization, including institutional modernization. The crisis situation in the banking sector began due to economic and political circumstances.

Profitability of bank assets and capital respectively, %

According to the Central Bank both indicators, profitability of bank assets and capital, during the three years have changed almost twice, showing a greater decrease in 2014[13].

The coefficient of profitability on assets and equity indicates how effectively the bank attracts resources and allocates them. Low profitability index may indicate insufficient customer base or an outdated investment policy of the bank. Thus, such an important indicator of the banks activity as profitability fell rapidly, showing the inefficiency of banks investments.

Analyzing the data on the amount of credit organizations' profit, which for the last year decreased by 40%, it is necessary to note the increase in the number of loss-making credit organizations. The share of loss-making Russian banks reached a maximum value in recent years and equaled to 15%.

To continue, another important index that should be considered in analyzing banking system activity and its influence on the national economy, it is the amount of acting banks in the Russian Federation, statistical data of which is represented in appendix 2 The table “The amount of acting banks in the Russian Federation” Appendix 2 [15]. The table shows that the number of banks in Russia over the past five years is constantly decreasing. During this period, the number of credit institutions in the Russian Federation decreased by 135, or 12.8%. And the greatest influence on this indicator had a reduction in the number of banks in 148, or 14.7% compared with the beginning of 2010. To consider this information in territorial aspect in more detailed way, it can be concluded that number of credit organizations in the Russian Federation has uneven distribution The table “The amount of acting credit organizations in the RF” Appendix 3 [15].

The main number of banks (50%) was registered in the European part of the country, and very few in other regions. Particularly low number of banks throughout the analyzed period is observed in the North Caucasus, Urals and Far Eastern Federal Districts, and their number continues to decline. For example, in the Far East over the last five years, the composition of credit institutions declined by more than 30%, from 36 to 23. In recent years, the main impetus for the reduction in the number of credit institutions and to the consolidation of the banking sector in Russia is the requirement to increase the minimum authorized capital of the bank according to the article 11 of the Federal Law № 395-1 «On banks and banking activity" from 02.12.1990.

The evaluation of current banking activity

The economic situation in Russia in 2015 can be described as a crisis, caused by external shocks: the fall in oil prices and sanctions, sharply deteriorated access to global capital markets. The pace of economic recovery in the years 2016-2018 will be determined by the effectiveness of adaptation to new environmental conditions, effectiveness of the structural reforms and implemented Government action plan to stabilize the economic situation. [14]

In the medium run it is expected to remain active sanctions against Russian banks and companies, which means almost complete lack of loans on European and American markets. However, borrowing opportunities will gradually improve in the Asian markets. It is expected that in 2015 there will be a reduction in net capital outflows of the private sector to the level of $ 100 billion (from154 billion in 2014) in the first scenario and up to 85-90 billion dollars in the second. Companies' capital net outflow may be increase from 77 billion USD in 2014 to 110-115 billion dollars in 2015. The main ruble and foreign currency resources of the companies will be used to repay external debt. According to the schedule of payments in 2015, companies will have to pay more $ 70 billion to repay its debt. It can be assumed that about 80% of these payments, companies can "refinance", taking into account direct foreign investors. As a result, there will a reduction of external debt on 20 billion USD in 2015. Compression of real incomes and stabilization of the ruble exchange rate dynamics will encourage people to net sales of foreign currency cash. [14]

The net outflow of capital from the private sector, % GDP

In the base scenario in the medium run the net outflow of private capital sector will stabilize at $ 60 billion in 2016 and $ 50 billion in 2017-2018 respectively. Against the backdrop of rising prices and the stability of the ruble the population will continue to return cash to the banking system in the volume of 3-9 billion dollars per year. Adaptation to financial sanctions from the West side will improve refinancing of external debt of enterprises. Moreover, the growth of repayments of external debt in 2018 will not lead to a significant increase in net outflows capital through a gradual opening of the Asian capital markets The forecast was taken from the official site of VTB . [14]

In the second scenario the same conditions maintain, but assumes a more active access to Asian capital markets in the years 2016-2018. In this case the outflow of capital annually on 10-20 billion will be less than in the first scenario.

At the same time, there is a risk of more intense capital outflow, mostly because of the continuing geopolitical conflict over Ukraine. In case of new escalating conflict the outflow of capital in 2015 could reach the level of 110-130 billion USD.

To sum up, banking system is a set of interrelated elements, which includes banking infrastructure and banking legislation, the Central Bank and credit institutions. Banking system of the Russian Federation, in terms of relations that are between its institutions, has a two-tier structure. Banking system is an integral part of the national economy. They are closely interconnected with each other. For stable and sustainable development of the real sector of the economy it is necessary to ensure stable, uninterrupted and competitive activity of credit institutions. A stable banking system is the key to stable functioning of the national economy. Due to the presented statistical data of the Russian banking system activity, it is seen that the economic situation in Russia in 2015 can be described as a crisis, caused by external shocks: the fall in oil prices and sanctions that sharply deteriorated access to global capital markets. The greatest risks for the Russian economy in the near future are associated with credit crunch, the negative effect of which is reinforced by sharp rise in price on imports and the onset of decline in final demand. There is a threat of a vicious circle: high interest rates and low availability of credit - the deterioration of enterprises solvency and production cuts - the growth of bad debts and falling of bank profits - a new wave of credit deterioration. To overcome the downturn in the economy, followed by the access to the path of sustained economic growth will require from the Bank of Russia softer monetary policy. The accelerated growth of the monetary base should provide, for following years, two key tasks: to ensure the maintenance of rates lending to the real sector of the economy at the level of not less than 7% in 2015 year, rising to 12-15% or more over the next two years, as well as financing the federal budget deficit.

Reference list

1. Federal Law of December 2, 1990 "On Banks and Banking Activity".

2. Federal Law № 86-FZ dated 10 July 2002 "On the Central Bank of the Russian Federation.

3. Allenyh M.A. The banking system as an element of a market economy-2004.

4. Barashkov O.A. The analysis of participation of the banking system in the formation of the resource base of the real sector of the economy. 2011.

5. Glushkova N.B. Banking: Textbook. 2007.

6. Lavrushin O.I. Money. Credit. Banks: Textbook. 2012.

7. Vedev A. The development of the Russian banking system in the current decade: results of a survey of the largest banks. 2011.

8. From risk analysis to the credit strategy: Tools and Techniques: Materials of a Round Table // National Banking Magazine. 2012. №7 (98). July.

9. In one step to coincidence// Kommersant. 2015. September.

10. Samiev P. Between crises: the Russian banking market // Analytical Banking Magazine, 2011. № 10 (194). pp. 40-49.

11. Banking Internet portal: http://www.banki.ru.

12. National economic magazine- http://www.kommersant.ru/doc/2806563.

13. Official site of Central Bank - http://www.cbr.ru.

14. Official site of Russian commercial bank- http://www.vtb.ru/ 15. Official site of Russian statistics- http://www.gks.ru/ Appendix.

Appendix 1

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Appendix 2

Amount of acting banks in the Russian Federation (01.01.2010-01.01.2014)

Appendix 3

Amount of acting credit organizations in the Russian Federation (01.01.2010-01.01.2014)

Appendix 4

Main indicators of Russia's payment balance in USD

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