Financial System of Russia

Welcome and Introduction

Prepared for Md. Shahriar Kabir Course Instructor FIN 506: Financial Market & Institutions WMBA-IBA-JU Prepared By Group 3, WMBA, IBA-JU Mir Abubakor Sidique ID# 201103068 Md. Mahbubur Rahman ID# 201103045 Mohammad Salim Shah ID# 201103079 Md. Sultan Mollah ID# 201103057 Poritran Talukder ID# 201103098

This study about a description on Financial System of Russia Purpose of the study Russia is the world's largest country The financial system of the largest country of the world Role of the financial system in Russia Gain a thorough knowledge about the financial system of Russia

Methodology of study

Desk research website searching Discussions with the knowledgeable people Relevant papers, reports and newspapers Various articles of financial system of Russia Data has been collected from secondary sources for necessary analysis

Components of Financial System of Russia

Financial Markets Banking Sector & Other financial intermediaries Central Bank Exchange Rate Policy & Monetary Policy

Key economic indicators

18000 16000 500 14000 12000
bln Rbl

600
bln USD

400
bln USD

300 250 200 150 100 50 0

25% 20% 15% 10% 5% 0%

98

99

00

01

02

03

04

300 8000 6000 4000 100 200

19

19

20

20

20

20

20

Export, bln USD Import, bln USD Trade balance, % GDP

200

20

05

10000

bln USD

2000 0
1998 1999 2000 2001 2002 2003 2004

0 GDP, bln Rbl Industrial output, bln Rbl GDP, bln USD Industrial output, bln USD

100 50 0

98

99

00

01

02

03

04

19

19

20

20

20

20

20

Domestic Debt of RF Budget Surplus, % GDP

External Debt of RF

20

05

% GDP

150

6% 4% 2% 0% -2% -4% -6% -8%

Financial Markets of Russia Foreign Exchange Market Money Market Capital Market

The Federal Government Bonds Regional Bonds Corporate Bonds

Indicators of the capital market development in Russia appear positive

Capitalization of the stock market has grown 8

times since the end of 2000

Credit rates for Russian enterprises have reduced two-three times since the beginning of 2000

Volume of provided credits grew 7.9 times in 5

years

Investment raising on securities market grew 9.7 times in 2000-2004

Equity Market Russian Trading System (RTS) & Moscow Interbank Currency Exchange (MICEX) merged in December 2011 The headline index for the Russian stock markets is the RTS index. Total market capitalisation amounted to 67 % of GDP in 2010, up from depressed levels in 2008 and 2009, but still well below the peak in 2007, when it reached 98 % of GDP

Stock market capitalization, bln rubles

12,000 10,000 8,000
6,867.0
bln rubles

11,100.0

6,000 4,000
2,499.0 3,650.0

5,870.0

2,000 0

1,211.0

31-Dec-2000 31-Dec-2001 31-Dec-2002 31-Dec-2003 31-Dec-2004 28-Oct-2005

mn USD

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

1Q 2000 2Q 2000 3Q 2000 4Q 2000 1Q 2001 2Q 2001 3Q 2001 4Q 2001 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003 2Q 2003 3Q 2003 4Q 2003 1Q 2004
ADR eurobonds equities corporate bonds

2Q 2004 3Q 2004 4Q 2004 1Q 2005 2Q 2005 3Q 2005

Volume of investments raised by Russian enterprises on securities market, mln USD

Banking Sector & other financial intermediaries Banking Institutions Russian banking sector consists of 1,007 banks Focused on lending to firms Income from lending to businesses is 59 percent Foreign bank presence is still relatively low in Russia 108 credit institutions in the country with at least 50 percent foreign ownership

Assets of the banking system

8 000 000 7 000 000 6 000 000 5 000 000 4 000 000 3 000 000 2 000 000 1 000 000 2000 2001 2002 2003 2004 2005

mln rubles

Assets

Capital

mln rubles
100,000 120,000 140,000 160,000 20,000 40,000 60,000 80,000

III/2000 IV/2000 I/2001 II/2001 III/2001 IV/2001 I/2002 II/2002 III/2002 IV/2002 I/2003 II/2003 III/2003 IV/2003 I/2004 II/2004 III/2004 IV/2004 I/2005 II/2005 Jul.2005

Assets of the investment funds

Credit rates for non-financial organizations

35 30 25 20 15 10 5 0
2000 2001 2002 2003 2004 2005

up to 1 year period

from 1 to 3 years period

over 3 years period

Non-Banking Institutions

Russias nonbank financial institutions is even lower than that of the banking sector Insurance sector is highly fragmented At the end of 2011 there were about 580 insurance companies Minimum own capital of a life insurance company rose from 60 million rubles (1.5 million euros) to 240 million rubles (6 million euros) Maximum allowable share of foreign capital in the sector from 25 % to 50 %.

Dynamics of lending in real sector of economy

3,500,000 3,000,000 2,500,000

mln rubles

2,000,000 1,500,000 1,000,000 500,000 0

all lendings

incl. with more then a year period

incl. ruble lendings with more then a year period

Central Bank of Russia

Interest rates on CBR operations Reserve requirements Open market operations Refinancing of credit organizations Currency interventions Setting of money-supply targets Direct quantitative restrictions Bond issues

Monetary policy Liquidity absorption Liquidity supply Reserve requirements

Threats of the Russian securities market

Many Russian companies dont recognize domestic market as a main investments source Lack of liquid, quality assets for investment of obligatory accumulative systems assets

Large influence of speculative funds

Trade of Russian assets goes under foreign jurisdiction

Main strategy of financial markets development

Increasing competitiveness of all financial market institutions including regulator itself as well as financial intermediaries and infrastructure Creating legal environment for advanced financial instruments for risk hedging and securitization Developing legislation and regulation for effective protection of investors and clients of financial service providers

Conclusion

The Central Bank of Russia faces a demanding task in conducting monetary policy Underdeveloped financial markets and large and volatile capital flows CBR was restrained in its monetary policy by exchange rate targeting and significant excess liquidity of the banking sector Interest rate policy of the CBR has not been very effective policy framework is gradually changing

Thank You To All

Q and A Session