Boosting the Business Activity: Does the Banking System have a Potential?

Abstract

Despite the currently observed positive dynamics of the industrial production, the problem of reversing the Russian economy to the sustainable and balanced growth has not been resolved. The expansion of the investment lending by banks might give the necessary impetus to the economic development; however, the weak demand of corporate borrowers for long-term loans of late is counterbalanced by the unwillingness of creditors themselves to be at risk. The purpose of the study was to identify the reasons why the Russian banking system practically lost its potential to promote the business activity in the economy. The paper analyzes the expectations and uncertainty factors in the economy, exposes weaknesses of the resource base and the loan portfolio of the banking system and reveals the key trends in the regulation of the financial-and- banking sector. It is concluded that the problems aggregated during the last two crises, combined with the attitude of the regulator insisting on the limited role of banks in investment lending, do not allow the banking system to prove itself as one of the main driving forces contributing to the growth of other market segments.