FAS WANTS TO LIMIT THE SHARE OF STATE PARTICIPATION AND INFLUENCE IN THE BANKING SYSTEM
It is necessary to abandon the criterion of state participation in the bank capital when selecting banks for some services and subsidies
On 19 July 2018, Deputy Head of FAS Department for Control over Financial Markets, Alexander Razin took part in an extended session of the Board Presidium of the Association of Russian Banks (“Russia” Association) on “Competition in the financial sector. Destatization of the banking sector of Russia”.
Alexander Razin outlined the key factors adversely affecting the state of competition on the financial market, particularly, the banking market.
In his opinion, such factors include exclusive privileges and special relations of some players with the state, first of all, in the form of regulatory requirements to the size of own capital and state participation in the capital of credit organizations to obtain the right to provide certain types of banking services, for instance, attracting temporary free funds from the federal or regional budgets as deposits.
“Such system of requirements is unjustified since the size and the fact of public participation are not the indicators of bank resilience to forecast safety of the budgetary funds in the future”, explained Alexander Razin.
These requirements are just administrative barriers that discriminate smaller but also financially stable banks without state participation.
According to the speaker, to resolve the problem FAS considers it necessary to replace the criterion of the size and state participation in the bank capital with the criterion of a particular credit rating for the operations on attracting funds, for example, the state budget, to deposits and giving bank guarantees. Competitive mechanisms for subsidies in state and other loan subsidizing programmes should be in place without setting any requirements in general.
Regarding other possible directions of destatization of the financial sector, FAS representative described proposals on antimonopoly control for buying shares and stock of economic entities, including financial organizations of the Russian Federation, by the state and affiliated persons.
He said that to level conditions for competition, FAS is in favour of prohibiting use of information about direct or indirect state participation to advertize financial services and operations.
The reasons is that to attract customers, credit organizations tend to put increasingly more emphasis, advertising their services, on state participation in their authorized capital rather than on the conditions of the services offered, sometimes creating a false impression in the advertisements about their exceptional reliability in comparison with other banks.
To the same purpose, FAS proposes to prohibit the federal and regional authorities, local self-government bodies, organizations exercising their functions and involved in rendering state and municipal services as well as state extra-budgetary funds to conclude contracts on providing financial services, consult on such services and advertise such services in their premises and grounds.
“The outlined block of measures towards reducing state influence on the banking system is reflected in the Governmental “Road Map” for developing competition in sectors of the economy, drafted with involvement of the Ministry of Finances and the Bank of Russia. Particular draft acts will be refined by specially formed FAS working groups that apart from representatives of executive and legislatives branches of power and the Bank of Russia also comprise representatives of the business community”, concluded Alexander Razin.
The findings of FAS monitoring of the state of competition on the banking market in 2011 - 2017:
- Clearly pronounced, sustainable leadership of 1 or 2 groups of banks with state capital and a dominating trend to further reinforcement of their positions; competition from other players is practically absent
- By the beginning of 2018 the share of banks with state participation on the federal markets of banking services was 70 - 78%
- The share of state banks on the regional markets of banking services exceeded the federal level in 55-70 regions of Russia, and was higher than 90% in 27 regions
- Market concentration on the absolute majority of regional markets (from 48 to 82 regions) is very high – the three leaders on such markets account for 58 - 100%
- The number of regional markets where only state banks were the top three leaders increased from 9-27 markets in 2011 to 33-58 markets in 2017.