02 Banking sector

What will banking look like in ten years’ time?

The rapid pace of progress has brought about profound transformations of the banking industry: new products and sales channels emerge, while customers’ needs and expectations continue evolving. Amid fiercer competition, traditional banking operations promise ever-smaller returns, and banks have to look for new activities to engage in, such as building their own “ecosystems”.

Meanwhile, non-banking companies are venturing into areas that used to be banks’ exclusive domains. Where will these trends take us in the next ten years, and what will financial intermediation look like in the future?

Project finance in residential construction: one third of the implementation completed. What has been accomplished and what lies ahead?

During this session we will review how the shared-equity construction market has evolved in terms of the funding structure, dynamics of project financing, construction volume, and prices.

We will also discuss the qualitative changes, how risks have been redistributed and whether the reform has been driving new business growth.

Moreover, of course, we will try to resolve the questions yet unanswered and to find ways to address the new challenges arising as the mechanism is being implemented.

Is there any contradiction between prudential regulation and stimulating growth?

Businesses often complain that even though banking regulations aim to contain risks, they often end up standing in the way of economic growth.
To which extent is this true? And what steps does the Bank of Russia take to ensure that prudential regulation both maintains financial stability and supports robust economic growth?

Using supervisory stress testing to assess the banking sector’s stability

Bank of Russia is intent on developing the supervisory stress testing (SST), which plays a key role in banking supervision in the developed economies. SST allows estimating the capital requirement for certain banks and the whole banking system in case of an economic downturn, and to elaborate measures that would mitigate the risks and enhance the financial system’s resilience.

The session will discuss the use of SST in Russia and its further prospects, particularly in connection with other risk management tools, such as the internal capital adequacy assessment (ICAAPs) and financial recovery planning.

Operational risks: an underestimated threat?

As the technology deployed by banks keeps developing at a rapid pace, new threats and vulnerabilities affect their processes and systems, having negative impact not just on the banks but also on their clients.

Since it is hard to estimate banks’ losses due to operational risk (especially indirect losses), and there is no data on the actual losses, the Bank of Russia is planning to introduce requirements for managing operational risk including cyber risks. The new framework would feature both qualitative requirements for operational risk management procedures and requirements for databases on operational risk events. Moreover, as a part of implementing the Basel III standard (2017), we plan to implement the new Basel standardised measurement approach (SMA) based on banks’ data on direct losses.

Evolution of supervision: new and emerging opportunities

Over the last few years, supervision has transformed significantly, due to both regulatory innovations and changes in the managerial processes.

Supervision aims to provide proactive assistance to credit institutions in order to help them improve their performance, while still ensuring full protection of the lenders’ and depositors’ interests. What are the new and emerging opportunities in this respect?

Managing concentration risks under national and international standards

Concentration risk is one of the major risks for the Russian banking sector, and its occurrence has led to some large bankruptcies of credit institutions in recent years.

The Bank of Russia pays particular attention to evaluating the level of concentration risk taken by credit institutions, and the quality of managing this risk. The Bank of Russia believes that there should be stricter regulations of concentration risk for systemic institutions.

If one of them suffers significant losses due to concentration risk, the “contagion” may spread all over the market. The Bank of Russia intends to introduce new risk concentration ratio on consolidated level under the Basel Committee on Banking Supervision Standard “Supervisory Framework for Measuring and Controlling Large Exposures” as a ratio of the sum of all exposures of a bank to a single counterparty or to a group of connected counterparties to the bank’s Tier 1 capital.