Russia : Financial Sector Assessment

This Financial Sector Assessment (FSA)
is a summary of some of the findings of the Financial Sector
Assessment Program (FSAP) report for the Russian Federation,
which was prepared jointly by the International Monetary
Fund (IMF) and the Bank in close cooperation with the
Russian authorities. Given the small size of the financial
sector, the effects of a potential financial sector distress
on the macro-economy would be relatively small. However,
there are serious weaknesses in the financial sector per se,
hampering the development of the sector, and its ability to
allocate resources in the Russian economy. A few interlinked
issues cut across the banking, capital markets, and the
insurance sectors. In spite of recent improvements, the lack
of transparency in the ownership structures, and poor
corporate governance, including banks, slowed down the
development of the sector, and hindered financial decisions,
and prudential supervision. There has been progress in
implementing structural reforms in key areas, e.g., the
agricultural land market, pension funds, and small business
taxation - but other reforms, including in the financial
sector, have lagged behind. While banks in Russia appear to
be well capitalized, the quality of capital is questionable,
even under the Russian Accounting Standards (RAS), and, loan
provisioning does not fully reflect the banks' credit
risks. Thus, banking sector reform is a matter of the
highest priority, if Russia is to achieve its growth
potential in the coming years. Reform efforts should be
concentrated on strengthening the supervisory framework;
enhancing the transparency of ownership, governance, and
financial reporting; and, facilitating the consolidation of
the fragmented private banks, as well as leveling the
playing field between private, and state banks. Most
importantly, any strategy for promoting the development of
the banking sector, will need to carefully consider the role
of Sberbank. The legal infrastructure for the banking sector
is generally well developed, but supporting legislation and
regulation for banking supervision and implementation
practices needs to be improved.