The Bank of Russia presents its 2016 Annual Report to the State Duma

The mega-regulator’s Annual Report reflects the Bank of Russia’s progress in its delivery on five strategical objectives: ensuring price stability and financial market robustness; enhancing financial inclusion of households and businesses; building up the national payment system; as well as developing and bolstering innovation on the financial market. The Report’s section dedicated to the Bank of Russia’s principal activity has been structured in accordance with these objectives, a novel approach to the Report's format.  This approach will help ensure public control over the efficiency of the Bank of Russia’s activity.

‘The year 2016 was marked with stabilisation of the Russian economy and its financial sector, as recession gave way to recovery growth,’ noted Elvira Nabiullina, Bank of Russia Governor, in the opening remarks. ‘That the recession was not so deep and the recovery started earlier than expected was to a great extent attributed to intact macroeconomic stability.’

As Elvira Nabiullina explains, price and financial stability is an indispensable but insufficient condition for sustainable economic growth; structural changes are of utmost importance. Consistently low inflation will help the Russian economy shift to the new model of economic growth based not only on exports of hydrocarbons but also on internal investment, economic diversification and rising productivity of labour.

With that in mind, the Bank of Russia pursued its policy of gradual inflation reduction. Inflation slowed down as economic activity recovered and long-term interest rates fell. This monetary policy stance is set to hold in 2017. The Bank of Russia intends to deliver on its 4% inflation target by the end of 2017.

In the reporting year, the banking sector was able to restore its margins and accumulated the capital that is sufficient to step up lending to the economy.  To boost competition and enhance soundness of credit institutions, the Bank of Russia announced fundamental changes in regulation in 2016 - a transition to a three-tier banking system. The reform will result in the application of simplified regulatory requirements to small banks which will be focused on servicing small businesses and households.

In 2016, the Bank of Russia started to change the mechanism of bank resolution. These changes are aimed at increasing transparency of the procedure and reducing the cost of financial resolution. They will boost investors’ interest in banking business and stability of the overall banking system.

In the reporting year, a number of major projects designed to create a full-fledged financial market infrastructure were accomplished. The national reinsurance company was established, the system of guarantees of pension savings was completed, and the infrastructure for processing Mir, national payment cards, was deployed countrywide.

In financial consumer protection, the Bank of Russia took measures to implement automated complaint processing; two regional complaint centres were launched.  To increase the efficiency and quality of response to public complaints and appeals, the Bank of Russia expanded the functions of its online reception and hot line.

The regulator gave a high profile to ensuring cyber-security of banks and financial institutions. Improvements were made to laws on the Bank of Russia’s regulation and control over data protection in financial institutions and countering fraud on the financial market. Requirements for data protection in the Bank of Russia payment system became effective. Mechanisms for the regulator’s cooperation with law enforcement agencies in investigating cybercrimes were improved.

In 2016, the Bank of Russia implemented considerable internal changes. To reveal problems in banks in a more efficient manner and ensure adequate supervisory response, it introduced bank risk analysis functions; it has also been gradually centralising supervision.

‘Issues we solve for each market sector (banking, insurance or microfinance) vary, but the strategic goal is the same - developing a sound financial system that boosts economic growth, a system where consumers are provided with a full range of services and their rights are safely protected,’ emphasised the Bank of Russia Governor.

The document submitted to the State Duma will be considered at the plenary meeting of the lower house of parliament. The State Duma also forwards the Bank of Russia’s Annual Report to the President of the Russian Federation and to the Russian Government for approval.