November: financial criteria altered

HomeNewsNovember: financial criteria altered

50% of Russian banks to leave the marketplace

More than 300 toxic banks have already been driven from the market by the Central Bank of Russia, dozens are saved including two top-10 institutions. However, the country’s banking system, it turns out, is not doing fine so far: the regulator will have to reduce the number of financial organisations by half in the next four years, experts say.

The number of banks in Russia may be reduced by half in the next four years under pressure of ongoing purging and the increased competition in the sector, experts affirm. Although they expect the number of banks to drop from around 600 to 300, according to some estimates roughly 50 banks would be enough to serve the Russian economy.

The CBR is expected to identify more troubled banks due for either liquidation or a forced financial recovery. All along the regulator’s attention is focused on smaller private banks. Although the CBR does not want their disappearance, thus introducing a basic banking license for institutions with a capital under 1 billion Roubles.

Although it might be hard to believe, between 2013 and 1 September 2017 some 346 licenses were revoked in Russia. Back in 2008, Russia had more than 1.100 banks, while in September 2017 there remained only 532.
According to finance experts, the Russian banking system is in need of further improvement. Thus the forecast for a reduction of 300 more banks seem quite logical.

«Some time ago, the banking system was neglected, multiple banking mishaps were ignored. However, when the crisis hit the country, banks turned out to be a weak link, not prepared for a stress test and a more stringent regulation. On top of this, many banks functioned and still remain today in bad faith, take on high risks or contribute to money laundering,» financial analysts report.

Given the recurring financial gaps in the working banks, one may assume that the financial system in Russia is anything but healthy which means that the banking sector restructuring will continue for at least the whole of 2018," banking analysts agree.

Many experts believe that a total of about 50 banks would be quite sufficient for Russia. Even 10 banks would be enough to serve the economy, as long as they are reliable enough for the CBR to vouch for them, so that the companies and individuals may trust these institutions with their cash. The point being the less banks there are, the better off would be those that remain. After all, they would have to win over the new customers of all those retired from the game.

Back in 2008, the aggregate revenue of all Russian banks was 406 billion Roubles, while last year it was nearly twice as much, 790 billion Roubles (or approximately EUR 11 bln in both cases due to the shift in exchange rates).
Throughout the same period, the number of market players decreased by half, while the state-owned banks increasingly dominate the market, accounting today for more than 70%.

So, what happens to the banks that seem to show profits? The main cause of failure may be found in the geopolitical and economic crisis in Russia, which began in 2014, combined with the tightening of the CBR requirements in respect of the banks’ own capital.

Today, no one would pledge for a new bank to stand strong under pressure even before the CBR decides whether it would get rid of it or save it. «For the time being, there is no banking crisis: the system runs smoothly and the regulator shows timely response, eliminating violators. The crisis might hit if and when the situation gets out of the control,» financial experts sum up.

Bank of Russia: in block chain we trust

The Bank of Russia is now convinced of the benefits of the block chain technology. The announcement came last month from the first deputy chairman of the CBR, Olga Skorobogatova. «Not everyone is aware today of mining and block chain. Following an intense analysis, we came to the conclusion that this technology can bring additional benefits not only to society, but also to the companies and the financial system as a whole. At present, we are testing it together with the banks,» she affirms.

According to Skorobogatova, the CBR defined in its mission a goal to become a high-tech regulator for business development in the country.

Together with the banks participating in the Fintech framework, today, the CBR is developing four programmes using the block chain: Know Your Customer, mortgage management, digital LOCs and bank guarantees. «The big project that we are currently implementing under this framework is the management of big data,» Skorobogatova adds.

On September 26 the Deputy Finance Minister reported that the authorities would not focus on the the cyber currency regulation, but rather on legitimating the block chain technology.

Back in August 2017, the Russian Association of Blockchain and cyber currency (RABIK) was created. It plans to promote and implement the technologies in question in federal institutions and in the Russian regions.

Blockchain is a technology of a network of databases with a constantly developing chain of records. It is resistant to the information fraud, revision, hacking and theft.

Save passage for the capitals to and from China

As confirmed by the Head of the Chinese regulator, Zhou Xiaochuan.

China needs to loosen the control over the movement of capital and gradually achieve a free movement of the Yuan, the head of the People’s Bank of China Zhou Xiaochuan affirmed. Son far, on the contrary, the authorities choose to monitor the movement of funds more closely, using the current currency restrictions to control the capital flight.

«There is no country in the world that achieved an open economy while keeping tight control over its currency», the head of the People’s Bank of China Zhou Xiaochuan affirmed. «The right time frame for the reform is very important, and one needs to seize the opportunity. Once the right moment is gone, the cost of reforms might significantly increase», the head of the regulator advised. According to him, the country needs a framework for currency exchange that would be more market oriented, with a «justifiable and balanced» rate of exchange for Yuan. On top of this, China needs to take measures to attract foreign investment and foreign trade partners, as well as to loosen the control over the movement of capital. This would allow to gradually achieve the free movement of the Yuan.

As of October 2016 the Chinese currency was included in the IMF’s reserve currency basket. However, according to Swift, its share in global payments was only 1.94% in August this year, down from the record 2.79% two years earlier.

Russians living abroad over 6 months to be excluded from FX controls

In October 2017, the Russian Government introduced amendments to the currency regulation to the State Duma, suggesting to get rid of the ambiguity that exists when determining the currency residence of the Russian citizens that permanently or temporarily reside abroad.

All the Russian citizens without exception are perceived as currency residents, as follows from the amendments. However, those living abroad for over six months will be spared the currency control.

Now, in accordance with the amendments that took more than a year to elaborate, the currency residence will cease to be a permanent risk factor for Russians, who spend most of their time abroad. The legal requirements for opening an account in a foreign bank, carrying out transactions on these accounts and reporting on the cash flow would not apply to Russians living abroad for more than 183 days a year, regardless of the number of entries to the territory of Russia during the year.

The term of residence abroad (over 183 days a year), which exempts the Russian citizens from the currency control, is apparently determined «taking into account the real life circumstances that different categories of population run into: visits for holidays, visiting relatives, students living abroad who travel for holidays, etc.», the bill’s explanatory note reads.

The bill allows transactions between Russian citizens residing abroad for more than 183 days a year: in particular, this clause legalises cash exchange between the members of the same family who left to live abroad.

As follows from the explanatory note, clarification of the ’currency resident’ term, will specifically help the Russian banks that are obliged to carry out currency transactions without delays on behalf of their private clients, i. e. no later than 1 day after the client submits the payment document. The bank must determine the status of individual (resident or non-resident) and apply the legislation accordingly during the next two days.

The long-awaited bill finally eliminates ambiguity, which deprived a Russian resident of a non-resident status following any short-term visit to the home country. Now, Russians who live over 183 days a year outside of Russia are excluded from the oversight and restrictions on FX operations as well as the the need to notify the FX controlling authority, the Federal Tax Service, of any foreign accounts and the cash movements.

In general cases, the settlements for non-residents must necessarily be made through the authorised banks, i. e. those established under the Russian law and holding a CBR license with the right for the FX transactions. Any exceptions for possible direct cash credit to a foreign account without a participation of a Russian bank, are specified additionally.

The UN: 2,500 richest men at par with joint GDP of 150 states

The cumulative global wealth of some 2,500 billionaires exceeds USD 7.7 trillion and is comparable to the GDP of 80% of the world’s states. This statement was made last month by the representative of the UN Population Fund (UNFPA) Richard Collodge, as he presented ’Life in different worlds’ report. It pays much attention to the problem of socio-economic inequality.

«Today, the cumulated wealth of 2,473 world billionaires is equivalent to the combined gross domestic product of four fifths of all countries in the world,» Collodge affirmed referring to the 2015 figures. The UNFPA report cites the data of an analytical company that estimated financial assets of all billionaires in the world at more than USD 7.7 trillion. «This means that while some privileged households manage a budget of billions of dollars, many hundreds of millions of families are struggling to survive on less than USD 1.25 a day.» The abyss between the richest and the poorest is not only unfair, but puts the economy, communities and states at risk," the report says.

Richard Collodge noted that the inequality between states «is generally declining», but is «growing within the countries, especially in the developing world.» According to the UNFPA, the social gap increased in 34 countries between 2008 and 2013, with the income of the wealthiest 60% of the population growing faster than the income of other residents. According to Collodge, the excessively large gap between the wealthy and the poor, apart from the obvious negative consequences for the countries themselves, also jeopardizes the achievement of the UN Sustainable Development Goals (SDGs) set in 2015, especially the goal of eliminating poverty by the year 2030.

Today, according to the UN Secretary General António Guterres, some 800 million people in the world live below the poverty line. He recalled that in 2015, 193 UN member states signed the Development Agenda until 2030, in which they pledged to provide all people with a worthy existence on a safe planet, and called upon governments to fulfil this promise.

President of Cyprus on recovered trust to the country’s financial system

As Nicos Anastasiades affirms, this year’s GDP growth will reach about 3.5%.

The investors have confidence in the financial system of Cyprus once again, their trust has been restored. The President of the Republic of Cyprus Nicos Anastasiades announced this in Moscow during his visit in October.

«Despite the dramatic consequences of the 2013 financial crisis, we tried not to increase the tax burden,» Anastasiades said. According to the President, the country managed to overcome the crisis while observing the conditions set by creditors.

«As early as 2014, we stabilised the situation», Anastasiades affirmed, adding that since 2015 there is a trend towards economic growth. «Specifically, this year, the GDP growth rates reach somewhat 3.5%», he said. «This allowed us to restore trust in the sovereign and the credibility in the eyes of our creditors», explained the Cypriot leader, adding that the international rating agencies have raised the investment attractiveness score for Cyprus by several points.

Cypriot passport: 12th most attractive in the world

The investment required for the Cyprus Citizenship by Investment Programme, which entitles one to a Cypriot passport, was significantly amended on 13th September 2016. The redesigned program seeks to retain the exclusive nature of the Cypriot passport, currently ranked 12th by the passport index.

The speed of processing remains one of its unique features, currently unmatched by other EU Countries competing to attract foreign direct investments such as Malta, Portugal, Hungary or Bulgaria. Within 3 months, qualified investors can be granted Cypriot Citizenship approval, which makes it the fastest CIP in Europe. The speed, simplicity and the inclusion of dependent parents are the driving indicators of Cyprus.

The minimum investment has been reduced from €5 million to €2 million plus a privately owned residence of at least €500.000.

In case of an investment made in residential property, a minimum investment of only €2 million is acceptable provided that one of the properties included in the investment is worth not less than €500,000 and it is used as the investor’s private residence.

The applicant’s family is also eligible to apply for citizenship, by investing an additional €500,000 per applicant in a jointly owned permanent residential property.

The amount that can be invested in Government Bonds is now capped at €500,000. The previous collective investment scheme and the bank deposit option are no longer available, although a combination of different economic criteria is available.

A new criterion was added, requiring the prior obtaining of a permanent residence permit by every applicant. This can be done simultaneously with the application for naturalization.

The programme continues to offer the following advantages:

  • Fast track procedure: the time frame for the application and approval is just 3 months.
  • Full EU citizenship is obtained, with the right to freely reside, work, study and have a business in any of the EU-member states, as well as in Switzerland, Liechtenstein, Norway and Iceland.
  • Dual Citizenship is permitted in Cyprus.
  • No stay requirement to reside in Cyprus after obtaining the Cypriot citizenship.
  • Visa-free travel to over 148 countries worldwide.
  • Eligibility for application is passed on to the investor’s spouse, children (dependants up to the age of 28) and their descendants.
  • No language proficiency requirements.
  • A Cypriot Citizen can freely travel, reside and work within any of the 28 European Union countries.