MOSCOW, November 29. /TASS/. The Russian banking sector remains generally stable, despite reduced financial stability of some banks, the World Bank said in its Russian Economic Report released on Wednesday.
"Despite the failure of some large private banks in 2017, the overall performance of the banking sector has been stable. The banking sector’s fundamentals have improved through August 2017, following the rest of the economy. Throughout the year, the key risk and performance indicators remained largely unchanged and credit growth picked up moderately," the report said.
At the same time, according to the World Bank, the aggregate capital adequacy ratio "remained stable throughout the year at around 13%, against a regulatory minimum of 8%, due to modest lending growth and profitable bank performance earlier in the year."
"However, loss of capital and recognition of negative financial results of banks under resolution weakened the overall sector performance in September," the report said, noting that the failure of some of the largest private banks negatively affected Russia’s aggregate banking sector profits, which declined for the first time since the beginning of 2017.
Thus, the total net profit of the Russian banking sector from declined in Q1-Q3 to 675 bln rubles ($11.7 bln) from 997 bln rubles ($17.3 bln) from January to August. "This drop observed in banking profits was attributed to the one-off recognition of negative financial results caused by additional provisioning for non-performing loans of banks under the BSCF resolution," the World Bank said.
Budget rule
The new budget (fiscal) rule is an important structural reform in Russia, Apurva Sanghi, the World Bank’s Lead Economist for Russia, told reporters.
"The new fiscal rule is based on fixed benchmark oil price and is an important structural reform. Along with the switch to targeting of inflation, the fiscal rule shows firm commitments of Russian authorities to deepening macroeconomic stability, the economist said.
Budget rule is the mechanism of formation of Russia’s budget. It determines the maximum level of spending on the basis of oil prices. The aim of the rule is to make the budget less dependent on market revenues. The essence of the rule is that additional revenues that are raised from sale of oil and gas should be transferred to the Reserve Fund. Such additional revenues emerge in case when the actual price of oil exceeds the price in the forecast.
Digital dividents
Russia’s digital transformation may reap huge dividends for the country’s economy, the report said.
"The potential digital dividends for Russia are considerable. Given the recent government focus on digital transformation as a national priority, the country is well-positioned to make the leap from the group of transitioning countries to that of transforming ones and join the world’s digital economy leaders, while reaping all the economic and social benefits this implies," the report said.
In July 2017, the government approved the program for development of Russia’s digital economy until 2024, which aims at rolling out high technologies in leading sectors of the economy. The program consists of five areas: normative regulation, education, human resources, cybersecurity, development of research competencies, and IT infrastructure.
Consumer demand
Consumer demand will be Russia’s main driver of economic growth in 2017-2019, the report said.
"Consumer demand is expected to be the main engine of GDP growth in 2017-2019. With headline inflation stabilizing around 4% in 2018-2019, real wages are expected to be on an upward growth trajectory. Resumed indexation of public employees’ salaries, frozen in 2015-2017, will also support real incomes and consumption. Other sources of income, such as informal wages, are expected to grow as economy recovers," the report said.
The World Bank projects a 1.7% GDP rise for 2017, a 1.7% surge for 2018, and a 1.8% GDP rise for 2019 in Russia.