The state of competition on the market of banking services

The focus of a report given by Deputy Head of FAS Andrey Kashevarov at the Forum of the Association of Russian Banks.

Forum of the Association of Russian Banks took place in Moscow on March 2017: “Development instead of stagnation.  Competition – the main driver of economic growth”. According to the event organizer, the focus of the banker’s Forum is chosen because it is competition that determines steady development of the economy in general and the banking system in particular.

The event, apart from FAS representatives, was attended by representatives in the Ministry of Finances, the Bank of Russia, other ministries and departments, the leading analysts of the banking market, top-managers of credit organizations and other companies.

The antimonopoly authority at the Forum was represented by Deputy Head of FAS Andrey Kashevarov who made a report on the findings of a randomized analysis of the state of competition on the market of banking services in 2011 - 2016. 
First of all, Andrey Kashevarov stated that since 2011 the number of credit organizations decreased in general by 38.4% - by 389. The percentage of such a reduction increased from 3.4 to 15% in a year. Looking at this indicator at the federal level, in six Federal Districts the number of banks dropped down by more than one third.

In spite of the growth of banking system assets by 2.37 times, the number of credit organizations constituting 80% of those assents went down twofold (from 50 to 24). At the level of Federal Districts, such organizations are predominantly below 10.

Due to such circumstances the share of state participation in the banking system continues going up and is currently over 50%.

At the same time the number of bank branches decreased by more than 60% (the average percentage of this reduction per year is 17.1%). By the end of the analyzed period, after some growth, the number of in-house structural units also decreased (by 21.5%) as well as the number of ATMs and payment terminals (by 12.5%).

In the past six years, particularly, due to involvement in bank curing, the number of credit groups went up twofold: approximately from 16 to 32.

Discussing actual figures that characterize the state of competition from the economic aspect, Deputy Head of FAS pointed out the share of the three leaders on the federal markets is sustainably high (58.8-62.9%) during the past six years.

Concentration of the absolute majority of regional markets (from 56 to 79 subjects of the Russian Federation in the relevant periods) is exceptionally high and the share of three leaders on those markets is from 70.1 to 100%. It included predominantly banks from state participation in the authorized capital.

The observed pronounced and stable position of 1 or 2 groups of bank persons and a subsequent significant breakaway of the leaders from other market players throughout the entire period shows that competition from other players is practically absent.

In particular, the following trends are observed on particular markets:

The shares of the three leaders on the federal markets of crediting physical persons and attracting assets of physical persons to bank deposits (bank accounts) were increasing, except some cases, and by the beginning of 2017 reached 62.3 and 60.7% accordingly.

The largest player on the federal markets of those services to physical persons constantly was the Sberbank Group, by 2017 its share reached: on the credit market – 41.2%; on the market of attracting funds – 46.8%. The gap between the leader and the second player varied in time from 16.1 to 37.6%.

As for the regional markets of crediting physical persons and attracting assets of physical persons, by 2017 the Sberbank Group was on the leadership positions in 78 and 79 subjects of the Russian Federation accordingly with shares from 26 to 88%.

Overall, the number of highly concentrated credit markets for physical persons has increased by 2.8 times since 2011 (from 27 to 76 subjects of the Russian Federation), while the number of moderately concentrated markets decreased six-fold (from 54 to 9 subjects of the Russian Federation).

The structure of attracting funds from physical persons by the end of the period in question was determined by high concentration on the markets of 81 subjects of the Russian Federation; and moderate concentration – in 4 subjects of the Russian Federation.

No low concentrated credit markets and markets for attracting funds of physical persons (highly completive markets) were found.

The competition development trends on the market of services to legal entities are multidirectional.

For instance, shares of the three leaders on the federal credit markets for legal entities and attracting assets of legal entities, except some cases (including the end of the period) were mostly growing, reaching 58.8 and 62.9% accordingly by the beginning of 2017.

The largest market player for crediting legal entities constantly remained the Sberbank Group; its share by 2017 was 33.1% (at the regional market the Group was also on the leading position by 2017 with the share between 26 to 82%). The gap with the second player after an abrupt reduction at the end of the period to 5.8% increased again by the end of the period in question and reached 17.5%.

At the same time, on the market of attracting assets of legal entities at different period of time the leading position among the big three were taken by VTB and Sberbank Groups of persons with shares 17-28% and 13-31% accordingly.

The structure of regional credit markets and the markets for attracting assets of legal entities was not stable: the number of highly concentrated markets was going up and down.

By the end of 2017 credit markets for legal entities were highly concentrated in 47 subjects of the Russian Federation (with the leaders’ shares from 70.1 to 99.6%); the markets of attracting assets of legal entities – 62 subjects of the Russian Federation (with the leaders’ shares from 70.2 to 100%).

Low concentrated markets were either absent or their number was insignificant.

Supporting the position to clear up the market form unfair players, the speaker also emphasized that in spite of the trend to reduce the number of banks the main reason for market concentration is tightening bank requirements (typically, the size of the authorized capital) permitting to render public services and under the frame of state programmes.

In this context, according Deputy Head of FAS Andrey Kashevarov, FAS agrees with the Russian Bank Association and maintains an opinion that the size of the bank capital does not characterize its financial stability and instead of capital it would be expedient to evaluate banks to fit particular purposes on the basis of their ranking, assigned by the ranking agencies included in the Register of the Bank of Russia.

In FAS opinion, the selection criteria based on bank own capital and other preferences for large and state-run banks, in particular, stimulate unfair conduct of some banks, especially in the crisis periods, which is corroborated by enforcement practice of the antimonopoly bodies, which, for instance, register incidents of unfair competition on the market of deposits of physical persons (aggressive attraction of funds with further failure to execute the announced conditions on interest rates in the part of refilling).

According to Andrey Kashevarov, similar use of such criteria encourages regional authorities to create advantages to large banks, particular, by recommendations  on transition for servicing subordinate persons.

He made some proposals which, as the antimonopoly body believes, will facilitate competition on the market of banking services:

- Change approaches to allowing banks to render services to the state and under the frame of state programmes to the benefit of competition

- Use only competitive mechanisms for allocating subsidies to support concessional lending following the example of autoloan subsidizing programme

- Ensure equal access to information of federal executive bodies and public extra-budgetary fund, particularly, using the same conditions and mechanisms for providing information for all banks

- Exclude legal conditions enabling dominant players to influence the conditions of services circulation in the market, particularly, by changing estimates of average weighted value of the full loan costs

- Unify the rules for accepting on-line payments via the sites of federal executive bodies, portals of public services and the public information system for horizons & utility services, enabling payments form accounts in any banks

- Stimulate and develop use of distance service channels including extended possibilities of remote client identification on equal conditions.

Deputy Head of FAS stated that the law enforcement practice of the antimonopoly bodies, based on the available information, can also be concentrated on the actions of regional authorities, organizations performing their functions, state extra-budgetary funds, particularly in:

Selecting banks for putting the assets of the apartment blocks capital repair fund in terms of non-statutory bank requirements; as well as applying the rules for evaluating applications only in the interests of large banks

Delivering and transferring social payments to the population in terms of non-statutory tenders for selecting banks to compensate its costs for such activities; as well as restricting the choice of banks by the population for opening bank accounts.