The closure of weak players in the Russian banking sector in the second half of 2013 - the beginning of 2014 helped to mitigate the effects of external shocks, which hit the country's economy two years ago, the chairman of the Central Bank of Russia Elvira Nabiullina said.
She explained that a number of banks have experienced difficulties since 2008. The decline in the Russian economy did not improve the situation in the banking sector. "The supervision has become more rigid when they understood that the banking system should be improved," Nabiullina said in an interview with Forbes magazine.
If not for the actions of the Central Bank, which removed the weakest banks from the market during the second half of 2013 - the beginning of 2014, when external shocks appear, it would be a domino effect in the banking sector," the chairman of the Bank of Russia said.
In addition, the chairman of the Bank of Russia has warned that a very high inflation will remain in Russia for the next few years: even after reaching the target level of 4%, it will be only the 126th among 189 countries.
Nabiullina also said why the Central Bank chose the target of 4%. According to her, many emerging economies choose higher targets — 3-4%, sometimes 5%. The growth rate of the different sectors is not the same in countries where markets are only emerging. "If the general price index is 2%, prices rise faster in some sectors, and the rest can experience deflation. Mass deflation is harmful: it reduces the incentives to invest and to avoid it in a wide range of sectors, the inflation rate should be about 4%," the head of the Central Bank noted.
She added that if earlier the Russian economy was guided by a stable exchange rate, now it's time to shift the focus to a stable low inflation and interest rates. "A floating rate makes it easier to adapt to changing external conditions," Nabiullina pointed out.
"An inflation rate of 4% is a level which makes it possible not to think too much of an impairment of ruble assets and provides sufficient stability" Nabiullina added.
Governor of the Bank of Russia also said that Russia is able to withstand global oil prices as low as $25 per barrel, although prices are more likely to stand at $40-50 over the next two years.
"We perform stress scenarios of $25 per barrel. It is an unlikely scenario, but even that is not catastrophic for Russia, although it may lead to a weakening of the ruble," Sputnik cited her as saying.
Nabiullina added that the central bank's forecast suggests a high degree of probability that prices in the next two years are expected to hover at $40-50 per barrel.
The head of the finance, monetary circulation and credit department at RANEPA, Alexander Khandruev, speaking to Vestnik Kavkaza, noted that the revocation of banking licenses itself is a routine activity around the world. "In recent years, nearly 1.5 thousand of banks were deprived of licenses in the US, while in Russia - only 300. But no one in the US says that they saved the banking system. The deprivation of licenses in the Russian Federation was because banks were in an extreme situation in the absence of programs for their support and preventive work," he recalled.
"The competition was unjust in the very beginning and together with the economic crisis it put banks in a very difficult position. According to statistics from the Bank of Russia, every second bank in Russia is unprofitable, but it does not depend only on the size of the interest margin, but also on those reserves, that they form - the quality of portfolios fell. In such a situation it does not make sense to talk about a "domino effect", because if banks do not work, they need to be deprived of a license," Alexander Khandruev pointed out.
"I'm not defending the bank deprived of licenses: there was an inadequate management and unprofessional management of risks. I also want to emphasize that a domino effect is possible only in the system where banks are more or less evenly distributed - in Germany or the United States, and our system is asymmetric: state-owned banks own 70% of total assets," the economist explained.
In this regard, Alexander Khandruev noticed that there has not yet been a real banking crisis in Russia. "It is a systemic crisis, when any of the major banks stop. But it is not likely, because such a bank will be supported by the budget. It turns out that the state subsidizes certain banks, and other banks are not needed," the head of the finance, monetary circulation and credit department at RANEPA concluded.
