Bank Of Russia Research Articles

How Do Corporate Governance Factors Influence Banks’ Value? Evidence from Russia

In this research study we built 3 models that evaluate the panel data of 30 Russian banks with the largest assets and highest reliability. Comparison of all three models by means of specification tests led us to the conclusion that the OLS model with the explanatory power of 67% is optimal.
 The presence of women on the board of directors negatively affects the banks’ valuation, while the number of the board of directors’ meetings, number of directors and presence of an audit committee have a positive impact on the net asset value of banks. If the share of women increases by 1%, the bank’s net asset value will decrease by 86%. If the board of directorshas a functioning risk management committee, the bank’s net asset value will grow by 225%. In case of an increase in the number of the board of directors’ members by 1%, the bank’s net asset value will grow by 4.4%. If the number of meetings of the board of directors per year grows twofold, the bank’s net asset value will increase by 118%.

Green Banking Tools for the Implementation of a State's Environmental Policy: Comparative StudyThe active implementation of climate change projects, the latest resource- and nature-saving technologies, and environmental measures for the green growth of na

The active implementation of climate change projects, the latest resource- and nature-saving technologies, and environmental measures for the green growth of national economies require financial support. Currently, financial resources for environment-related investments and innovations are raised due to the increase of operational activities in banking institutions aimed at introducing green projects on the principles of environmental and socially responsible financing. This modern trend, known in the financial sphere as green banking, becomes relevant in countries where it is quite uncommon (for example, the Russian Federation and the Republic of Kazakhstan). The study aims at identifying the preferred tools for implementing the mechanism of green banking in Russia and Kazakhstan. The comparative analysis of expert opinions from Russia and Kazakhstan allows identifying both similarities and differences regarding the preferred instruments for providing monetary credits by green banking. However, the best lending rates for legal entities are considered the most preferable for experts from both countries.
 The authors of the article conclude that the creation of a segment of green products and services in the financial market will serve not only the implementation of the green economy principles but also the formation of an effective environmental policy as a mechanism for implementing sustainable development goals supported by environmental financial policy.

Regulation of Banking Groups and their Financial Stability in Russia

More complex activities, financial reporting, and risk aggregation of banking groups increase the relevance of research on their financial stability. The purpose of our study is to analyze the effectiveness of banking groups’ regulation in the Russian Federation and to develop proposals for its optimization. The scientific novelty includes the identification and proof of the hypothesis of the dependence of the banking groups’ financial stability on the level of the group control, as well as measures to improve the regulation of activities and financial stability of banking groups in Russia. The research methodology is based on a linear model on panel data (fixed effects models, random effects models, and pool models). The empirical base of the study includes data on the 26 largest Russian banking groups and parent credit institutions of banking groups from 2010 to 2020. A hypothesis was put forward that the financial stability of the banking group depends on the effectiveness of the regulatory control within the group. To confirm the hypothesis, the authors assessed the financial stability of banking groups using the Zscore, while the banking groups were divided into two pools depending on the level of regulatory control. As a result, this hypothesis was confirmed. For banking groups with a high level of regulatory control, a model of financial stability and the factors that have the greatest impact on it were identified. The authors suggested the following measures to improve the regulation and financial reporting of the banking groups: 1) to expand the regulatory consolidation of the reporting of banking groups to the level of accounting, which will create the basis for a complete risk assessment; 2) to clearly define approaches to formalizing the assessment and management of the forced financial support risks for the group companies; 3) to unify the disclosure by banking groups of information about risks, methods for their assessment and management, including the relationship with the business model of activity. These measures are aimed at improving the risk management of credit institutions.

Legal Regulation of Banking in the New Regions of the Russian Federation

In October 2022, 4 new constituent entities were admitted to the Russian Federation: the Donetsk People’s Republic, the Luhansk People’s Republic, the Zaporozhye and Kherson regions, which put on the agenda the issue of integrating their banking business into the federal legal field. The study focuses on the following questions: how this process is going and what impact it makes on the national banking system as a whole. According to the results of the study, it is revealed that the legal regulation of the banking system of new constituent entities of the Russian Federation is undergoing a transitional period characterized by the effect of the norms adopted in these regions before they entered into the Russian Federation, as well as acts of emergency legislation. The author determines the factors influencing banking activity in the new constituent entities of the Russian Federation: the need for legal transformation, implementation of the special military operation, unfriendly actions on the part of the United States and foreign states and international organizations that have joined them. Extremely low availability of banking services in these constituent entitties of the Russian Federation makes it necessary to open branches and subsidiaries of Russian banks. To sum up, taking into account conclusions made about the nature of integration, the author proposes measures aimed at supporting the banking system not only in the new regions, but also in the Russian Federation as a whole: increasing limits on cash withdrawals; writing off loans the collateral for which was lost during hostilities for individuals and legal entities located in new regions; resumption of the work of exchange offices; acceleration of the process of introducing a non-bank payment service provider to the banking market; creation of a fund for settlement of losses in the banking sector; development of a mechanism for parliamentary control over acts of emergency regulation adopted by the Bank of Russia, the President of the Russian Federation and the Government of the Russian Federation.

Technological transformation of debt securities markets and its effects

Subject. This article examines the impact of electronification on the economy and business model of broker-dealer companies and the structure of the debt securities market. Objectives. Based on the analysis of the process of electronification of debt securities markets observed over the past 20 years, the article aims to identify the effects of the consequences of this process in relation to the key players of these markets, as well as assess what trends and factors influence the markets’ structure change. Methods. For the study, I used elements of the systems approach, comparative intermarket analysis, and the impact analysis of the technological component of economic development at the micro level. Results. The article reveals the main features of the electronification of the debt securities market and the factors of electronic trading spreading in the sector of fixed income instruments, as well as it identifies threats related to the change in the structure of the analyzed market, consisting in the growth of the proportion and impact of high-frequency trading. Relevance. The results can be used by the Bank of Russia in strategizing the debt securities market’s development to ensure technological leadership.

Are western sanctions so terrible and how to contain their impact on the economy and population of Russia?

Subject. The article considers the impact of US and Western sanctions on the economy and citizens of the Russian Federation after the start of the special military operation in Ukraine. Objectives. Our aim is to analyze the impact of sanctions on the Russian economy and its financial system, to identify economic determinants enabling to restrain this impact. Methods. The study draws on methods of scientific and information base, synthesis, grouping of obtained data. The methodological and theoretical basis consists of works of domestic and foreign scientists on the impact of economic sanctions on the development of individual countries and the world economy. Results. The study shows that the Russian economy has proved to be much more resilient to the impact of sanctions. The sustainability of Russia's economic system rests on four main factors: (1) sales of our export goods, due to price hikes and the absence of a complete embargo; (2) sustainable domestic consumption through extensive support to businesses and citizens, and tightening the State regulation; (3) structure and composition of GDP (the real sector of the Russian economy in GDP is almost 38%); (4) preservation and expansion of friendly relations with major powers that refused to join the restrictive measures of Western countries. Conclusions. The Bank of Russia should stimulate the country's economy, annually increase the amount of money supply, reduce the key rate up to 3% per annum by the end of 2023. This will increase investments in the economy and provide annual GDP growth.

Мисселинг как современный инструмент недобросовестных продаж банковских продуктов и услуг в коммерческих банках

Introduction. Misseling has become a problem for commercial bank customers today. Misseling can be found both in large credit institutions and small banks. Formally, this is not a violation of the law, but, in fact, misleading of the client. In fact, there is a bank fraud when selling a banking product or service. Despite the fact that this phenomenon can be found in almost any bank to varying degrees of participation, from a scientific point of view it has not yet been sufficiently studied, although recently the Bank of Russia has made an attempt to regulate this process legislatively. Theoretical analysis. The article analyzes the concept of “misseling” and its place in the technique of unfair sales of banking products and services in commercial banks. Modern types of misseling are distinguished: unfair information, related sales, opaque pricing, sale of unsuitable products, product substitution. Empirical analysis. It was revealed that the number of misseling cases in the banking sector in the analyzed period increased, one of the reasons was a significant reduction in the key rate after its high value, low level of the population’s financial literacy. Against the background of a significant decrease in complaints related to investment life insurance, there was an increase in complaints related to cumulative life insurance, as well as the number of all other complaints on various topics. Results. The directions of improvement on encountering misselling by the Bank of Russia, commercial banks and clients are formulated and described. One of these areas was the introduction of new rules for the sale of financial products by the Bank of Russia. If the Central Bank of the Russian Federation detects a violation on the part of a commercial bank, it has the right to issue an order to the financial institution to suspend the sale of the product until the problems are eliminated. In some cases, the Bank of Russia may oblige the bank to buy back from customers all products sold in violation and make a full refund.

The Legal Nature of the Institution of the Financial Ombudsman in the Russian Federation

The paper analyzes the legal nature of the Financial Ombudsman. The conclusion is made about its multi-component nature. the paper examines both the components of the legal nature of this institution that are laid down by the normative regulation of the activities of the Financial Ombudsman in the Russian Federation and the historically inherent functions of this institution. In particular, the author dwells on the content of such functions of the Financial Ombudsman as protection of the rights of consumers of financial services, resolution of disputes between financial organizations and consumers of their services, participation in the adjustment of the process of interaction between financial organizations and consumers of their services, as well as information interaction with the Bank of Russia and other government agencies aimed at improving the current legal regulation of protection issues, explains the implementation procedure for the rights of consumers of financial services. The paper claims the necessity of preserving the multi-component legal nature of the institute in the course of its further development.

Industry-Specific Approach to ESG Ratings: Analyzing the Impact on Russian Companies


 
 
 Objective: The objective of this study is to analyze the limitations of current ESG assessment methodologies and propose a more industry-specific approach to accurately assess companies' ESG performance. By examining the importance of various sustainability factors across different industries, the study aims to highlight the need for more tailored ESG assessments.
 Method: A comprehensive analysis of current ESG assessment methodologies was conducted, along with an examination of the importance of various sustainability factors across different industries. The study used a mixed-methods approach, including both qualitative and quantitative analysis.
 Results: The study found that the importance of ESG factors varies by industry, and a more industry-specific approach is necessary to accurately assess companies' ESG performance. The findings have practical implications for rating agencies, companies, and investors interested in sustainable development. Based on the analysis, aggregated conclusions are given on the level of significance of various factors of sustainable development for specific industries. However, the lack of published non-financial statements and reports in Russia complicates the process of developing weight coefficients for Russian companies.
 Conclusions: The study highlights the need for a more industry-specific approach to ESG assessments to accurately assess companies' ESG performance. The findings suggest that it is necessary to develop a methodology of weight assessment for different industries, including a unified system of assessment across different ESG rating providers. The Bank of Russia has published a report in the beginning of 2023 that provides recommendations on developing ESG assessment methodology and scope for the weights for each ESG criteria and elements.
 
 

Socially Responsible Investment in the Russian Stock Market

One of the major elements of the sustainable development policies is the socially responsible investing (SRI), also called ESG investing (environmental, social, and corporate governance) or green investing. The key feature of SRI (ESG investments), which distinguishes it from the other forms of raising capital, is the focus on priority financing of environmental and social projects providing long-term positive effects and consequences for society (the wellbeing of an individual and the nation), the environment (including climate), regional and global economies. The research aims to study ESG-investments’ influence on the Russian economy, specifically, the exchange-traded funds (ETF) industry. The research methodology includes structuring, comparison, generalization, economic analysis, induction, deduction and synthesis. The results of include analysis of the foundations of socially responsible investments, the concepts, and factors of ESG investments. Also, the global and Russian ESG markets are explored, including ESG-exchange traded funds industry, its features, structure and trends. Based on the research, the author concludes that the Russian market for ESG instruments is only developing. However, interest in this category of financial instruments is growing among investors, which is facilitated by the policy pursued by the national regulator (the Bank of Russia), which encourages the introduction of ESG practices by Russian issuers of securities.

Developing the methods to assess financial literacy of the population of Russia under digitalization

Subject. The article explores methods to assess the level of financial literacy of the population. Objectives. The focus is on the analysis of existing methods, their updating in conditions of digital technologies introduction in the financial sector. Methods. We identified criteria for assessing financial literacy through the review of regulatory and methodological materials of the Bank of Russia and NAFI. The statistical analysis of data of the said organizations and Russian Ministry of Internal Affairs showed the need to supplement the set of criteria that form the basis of the methods. Results. We revealed changes in the financial market, relating to transactions of individuals; systematized methods of financial literacy used by NAFI, the Bank of Russia, and the Ministry of Finance; unveiled problems of development of financial services for individuals under digitalization, and supplemented the list of criteria for assessing the financial literacy of the population. These criteria can be included in the methods used by the Bank of Russia and NAFI. Conclusions. The population has become a more active user of financial products, including investments. However, the financial knowledge and competence are not sufficient. Meanwhile, the transition to the digital environment of obtaining financial products and services caused an increase in the level of fraud in the financial sector. These changes should be reflected in the new criteria for assessing the financial awareness of the country’s population.

New sanctions of the European Union and United States against Russia and their impact on Tajikistan’s socio-economic development

The article examines the socio-economic relationship between Tajikistan and Russia, the new European Union and USA sanctions against Russia and their impact on the economy and well-being of Tajikistan, and the role of Society for Worldwide Interbank Financial Telecommunication (SWIFT) in Russian and Tajik banks, including the disconnection of SWIFT from Russian banks and its impact on remittances of migrant workers in Tajikistan. Attention is paid to Tajikistan’s crisis management policy. After gaining independence, Tajikistan’s economy suffered greatly from the civil war in the republic. Russia is one of the main donors to Tajikistan’s economy. There are countries that are more connected to Russia than Tajikistan, but it is difficult to find a country that could compete with Tajikistan in terms of dependence on Russia. Almost all sectors of Tajikistan’s economy depend on Russia: Tajikistan is a donor country for migrant workers, and remittances from migrant workers play an important role in Tajikistan’s economy. Only, at the expense of money transfers of Tajik labor migrants, the banking sector of Tajikistan is supported. Over the years of independence, Tajikistan has not taken its economy out of the influence of Russia. The dependence of the Tajik economy on Russia manifested itself in the very first days of the conflict actions on the territory of Ukraine in February 2022. After the statement of Western countries on the introduction of new sanctions to restrict the access of some Russian banks to the SWIFT, the problems of the financial intermediation market of Tajikistan were exposed. An unprecedented package of sanctions by Western countries due to the situation with Ukraine has already led to a number of problems inside Tajikistan. European Union and USA sanctions against Russia have also had a strong impact on all sectors of Tajikistan’s economy, from food prices to the banking sector. The aim of the article is to assess the role of the new European Union and USA sanctions against Russia in connection with the conflict in Ukraine and their impact on the economy and welfare of Tajikistan.

Financial security of Russian banks under sanctions

Financial security of Russian banks under sanctions

Управление проектами на основе анализа бизнес-процессов и основных тенденций развития коммерческих банков

As a result of the changes that have affected to a large extent the entire banking system of the Russian Federation, banks were forced to rebuild the proven algorithms and automated management platforms. The reason for this is the import substitution of the software used as a result of the depar-ture of the main vendors of foreign automated systems that were used by Russian banks. At the same time, many banks faced a situation in which the accepted software from Russian developers was difficult to integrate into the management environment of their business processes. At the same time, each bank solves this problem in its own way, while software develop-ers bring new products to the market, often not taking into account the inter-ests of banks, which together leads to problems in adapting the proposed software to the required functionality. Without studying the specifics of the business processes of modern banking organizations, many solutions re-main unclaimed.
 Therefore, it is relevant to study business processes and trends in the de-velopment of commercial processes in the banking sector, which will allow modern developers to more clearly and clearly introduce systems to the market that help meet all the needs of financial organizations.
 This article presents the capabilities of Russian developers to integrate modern software into the business processes of the banking sector, which will, to a certain extent, solve the problems associated with the withdrawal of foreign vendors from the market. The study will determine the capabilities of banks and is aimed at ensuring that developers also take into account the interests and specifics of the commercial processes of the banking sec-tor, which together will allow building the most effective digital management platforms.

Comparative analysis of deposit operations of the largest commercial banks in Russia

The article presents a comparative analysis of deposit operations of Sberbank, VTB Bank and Russian Agricultural Bank for 2020–2021. In all banks over the period presented, there has been an increase in the volume of the deposit portfolio, the largest share of which is accounted for by funds of individuals and corporate clients.

Аудит как инструмент снижения комплаенс-рисков участников цифровой инвестиционной экосистемы

The article is devoted to the problem of developing mechanisms to increase the sustainability of the digital investment ecosystem, in which the main participants are investors, borrowers or other persons attracting investments, the Bank of Russia as a regulator, a professional organization. The purpose of this study is to identify ways to trust the system of digital investment platforms by developing financial compliance methods for ecosystem participants. In the course of the study, methods of statistical analysis, generalization and grouping of compliance risk assessment, ecosystem modeling with the allocation of functions and actions of its participants were used. The ecosystem approach was used as a basic approach, which allows revealing interactions and assessing the impact of the risks of one participant on the stability of the ecosystem as a whole. The study found that participants are exposed to high compliance risks that can lead to a system default and cause systemic risks of a chain of bankruptcies due to defaults, changes in rules and restrictions. The level of compliance risk for crowdfunding participants was 27%, and the analysis of operators’ declarations identifies 23 types of risks that an investor takes on and which carry the threat of loss of invested capital. High risks and their diversification led to the conclusion that it is necessary to build investment compliance control procedures into the investment ecosystem, which can be carried out by audit organizations as assurance tasks. The results of the study are of practical importance for the development of the methodological apparatus of compliance in the process of carrying out activities by audit organizations and the development of a system for regulating the activities of investment ecosystems by the Bank of Russia.

Связь финансового и промышленного стрессов с параметрами денежно-кредитной политики в российской экономике

The paper examines the relationship between financial and industrial stresses in the Russian economy in 2006–2019, mediated by the monetary policy of the state. Stress indices are constructed on the basi of a number of financial market and industrial sector indicators of the Russian economy. These variables are aggregated using the principal component analysis. Stress indices are calculated as the moving difference between the standard deviation and the mean value of the first principal component. The graphical and correlation analysis confirms that industrial stress in the Russian economy grows during financial crises, accompanied by an increase in credit interest rates (including the key rate) and the scale of refinancing of credit institutions by the Bank of Russia. Based on the construction of ARDL models, we obtained convincing evidence of the positive impact of both a short-term increase in the key interest rate and a longer increase in the scale of refinancing of credit institutions by the Bank of Russia on the reduction of financial and industrial stresses in the Russian economy, which, however, appears in different time intervals. We concluded that the combined management of industrial and financial stresses, taking into account their interaction and sensitivity to different instruments, requires the search for the optimal combination of monetary regulation methods. The results obtained may be useful in conducting a prudent monetary policy in periods of financial instability.

ФАКТОРЫ ВЛИЯНИЯ НА ТЕНЕВОЙ БАНКИНГ В СИСТЕМЕ БАНКОВСКОЙ ДЕЯТЕЛЬНОСТИ

The article reflects the main functions of banks: storing money, providing loans, money transfers, etc. The author examines the mechanisms that are used by banks to perform tasks, such as maintaining financial stability, controlling inflation and ensuring liquidity in the market. This paper presents the main factors influencing the development of shadow banking in Russia: the complexity of the procedures for obtaining a banking license, the lack of adequate control by government agencies, the underdevelopment of the financial infrastructure, including the lack of electronic payment systems and the low quality of banking services, the low level of financial literacy of the population - and approaches to solving these problems are analyzed.

A Systemic Approach to Evaluating the Organizational Agility in Large-Scale Companies

This paper presents action research to analyze an approach for assessment of the alleged agile transformation. This approach was implemented at AK Bars Digital Technologies, an IT spin-off of one of the largest banks in Russia using the Scaled Agile Framework. The approach is based on the Goal-Question-Metric approach, non-invasive measurement collection, and systemic analysis. It uses data from several different sources, including interviews, code repositories, user ratings in the play stores, and templates for agile assessment. The effectiveness of the approach is subjectively validated by the adoption of the proposed recommendations by the banks’ senior management. Details are provided on the approach, the required effort from the side of both those assessing and of the people being assessed and the results. The final part of the paper is devoted to the discussion of its generalizability and the plan for future experimentation and refinement.

Организация системы мониторинга финансовой безопасности региона

A monitoring system for regional financial security based on a key set of indicators can be used to timely and promptly identify, analyse and assess security threats at the meso-level. The study hypothesises that the implementation of the proposed monitoring mechanism will improve detection, analysis and diagnosis of threats to financial security across regions. This can be achieved through the synthesis of an indicative approach, ranking method, minimax approach and normalisation function. Additionally, the system can be used to more accurately determine the security zone and assess the influence of various factors on each indicator. The article presents a methodology for assessing regional financial security based on a set of indicators characterising regional financial systems and their budget, investment, foreign economic components. Statistics from the Federal State Statistics Service, Bank of Russia, Treasury of Russia, customs and tax authorities were analysed. The indicative approach, ranking method, minimax approach, and normalisation function were synthesised to transform original data into a hundred-point scale, determine threshold values and identify the most significant threats to financial security in the field of foreign economic activity, monetary policy, financial stability and enterprise performance. The testing of the proposed methodology in Kirov oblast using ten indicators revealed several threats to the region’s financial security. Dynamics of indicators of Kirov oblast were compared with those of other regions of the Volga Federal District. The developed approach to organising financial security monitoring and recommended tools can be used by public and administrative authorities for identifying, analysing, assessing and predicting threats to financial security of meso-level systems. Future studies can increase the number of indicators for examining financial security.