Corporate Banking

Russian Economy
and Banking Sector in 2006
In 2006, Russian economy continued
dynamic growth. The nominal gross
domestic product (GDP) increased
to RUR 26,6 trillion, while real GDP
grew by 6.9%.
Substantial growth of Russian economy in 2006
was supported by favorable market conditions as
well as by increase in investments and consumption
within the country. This allowed Russia to go 3
positions up by the volume of GDP compared to
the last year rating. Leaving India and Mexico
behind, Russia was number 11 this year. The
nominal gross domestic product (GDP) grew up to
RUR 26,6 trillion, while real GDP grew by 6.9%. The
main drivers of this growth were capital investments
(13.5%), retail trade (13%) and construction
(5.1%). As a result of general economy growth GDP
per capita increased 25% year on year, to RUR
189,000 (app. USD 7,200).
The Stabilization fund established by the
Federal Government was created to support
further growth and development of the Russian
economy. At the beginning of 2007, the Stabilization
fund amounted to RUR 2.3 trillion, or almost
USD 89.1 billion. There is a potential for the futher
growth of reserves due to the Presidential programme
which was launched in 2004 in order to
support high priority national projects.
The accumulation of the funds in the Stabilisation
fund in 2006 allowed for the considerable change
in the structure of Russia’s foreign debt. The
foreign sovereign debt declined from USD 76.5
billion to less than USD 52 billion, mainly through
the prepayment of debt to the Paris Club. At the
same time, the foreign debt of the corporate and
banking sectors increased from USD 175 billion to
USD 261 billion.
The positive trends in public finance persisted
largely due to the continuing growth in global oil
and gas prices and increasing export proceeds. In
2006, Russian Urals oil traded an average price of USD
61.2 per barrel (2005 – USD 50.4, 2004 – USD 34.2).
Solvency strengthening together with the
further increase of gold and foreign exchange
reserves, decrease of GDP to external debt ratio
and increase in stability and balancing of public
finance created strong support for the national
currency strengthening. In 2006 the real RUR/EUR
rate grew by 6.4% and RUR/USD rate by 14.6%.
The inflation rate dropped to 9%, remaining within
the projected range of 8.5–11%.
The unemployment rate, as defined by the
International Labor Organization, was 6.8% of the
73 million national labor force. GDP growth of 25%
resulted in an increase of real disposable personal
income by 10% year on year, while average
monthly wages increased by 13.5% in real terms.
The 12.1% increase in real consumer expenditures
was accompanied by a rapid growth of retail bank
lending. Remains the overall trend of a higher
growth of personal expenses compared to
personal income.
In a whole the macroeconomic situation in
Russia in 2006 can be characterized as favorable.
Despite a continuing imbalance in the composition
of GDP and foreign trade pattern, budget and
overall economic dependence on oil and gas
exports, as well as relatively high inflation, Russia
benefited from the macroecomomic situation and
concentrated on further strengthening its position.
Russian banking sector continued to perform
steady growth in 2006. The steps taken by the
Bank of Russia to improve efficiency of banking
supervision led to the revocation of 59 bank
licenses and the reduction of the total number of
banks from 1,356 to 1,293 over the year. At the
end of 2006, some 300 financial institutions held
general banking licenses and about 600 institutions
had a capital base exceeding EUR 5 million.
Along with that the level of consolidation in
banking sector is rather high. By the end of 2006,
the top 20 banks accumulated almost 65% of the
sector’s total assets. According to the industry
experts further consolidation in the industry will
be accelerated by the introduction of higher
minimum capital requirements, enhanced
financial monitoring, continued transition to
international financial reporting standards, etc.
The importance of the banking sector in Russia
is growing: as of the year end 2006 total banking
assets amounted to 53% of the GDP. Despite these
positive recent developments, the involvement
of the banking sector in the country’s economy
is still quite low, particularly compared to countries
within the European Community. Thus, the Russian
banking system has a long way to go.
Further development of the banking sector is