RUSSIAN FINANCIAL SECTOR Investor presentation

RUSSIAN FINANCIAL SECTORInvestor presentationJuly 2019

CONTENTS

Ban

k o

f R

uss

ia: O

verv

iew

Evolution – 4

Reforms – 7

Compliance with international standards – 8

International cooperation – 9

Financial market development strategy – 10

Newsletter – 11

Ru

ssia

n M

acro

Up

dat

e Key indicators – 14

Macrofinance – 15

Inflation – 16

Inflation expectations – 17

Economic forecasts – 18

Monetary policy – 20

Ru

ssia

n F

inan

cial

Se

cto

r Banking sector – 22

Financial stability - 34

Securities market – 35

Corporate governance – 44

Countering malpractice – 45

Investment funds – 46

Non-state pension funds – 47

Insurance – 48

Commodities – 49

Microfinance – 50

Fintech – 51

Market place - 53

Payment infrastructure – 54

Consumer protection – 57

Financial inclusion – 58

AML/CFT – 59

Cybersecurity – 60

2

BANK OF RUSSIA: OVERVIEW

EVOLUTION (1)


1990

Central Bank of Russia (CBR): founded in 1990

Federal Financial Markets Service (FFMS): founded in 1993

1992 – MICEX established– Law on insurance business

1995 – RTS exchange established

1996 – Law on securities market

1996 – Law on joint-stock companies

1999 – Law on protection of rights ofsecurities market investors

1995 2000 2005 2010 2015 2020

2013 CBR becomes the megaregulator of

the Russian financial sector

2002 – First edition of the Russian corporate conduct code

2003 – Law on mortgage-backed securities

2011 – Law on insider trading– MICEX and RTS merge into the Moscow Exchange– FISS joins FFMS and the latter becomes insurance market

regulator

2012 – National Settlement Depository obtains status of the CentralSecurities Depository (CSD) of Russia

2013 – National Clearing Center obtains status of the first qualified Central Counterparty (CCP) in Russia

2013 – CBR becomes an IAIS member as well as IOSCO member

2014 – Inflation targeting regime with 4% medium-term target rate– Introduction of a floating exchange rate regime– Approval of a new corporate governance code– National Card Payment System Joint-Stock Company

(AO NSPK) established

2015 – Signing of the IOSCO Multilateral Memorandum ofUnderstanding

– National payment system “Mir” established and “Mir”card issue started

2016 – Banking regulation in Russia assessed as compliant with Basel II, Basel 2.5 and Basel III (RCAP)

2017 – Introduction of proportional regulation in banking sector– Introduction of new financial rehabilitation mechanism

2018 – Bank of Russia joins MMoU IAIS

1990 – Law on banks and banking activities– Law on Central bank of RSFSR

1992 – Russia becomes an IMF member

1995 – Law on Central bank of RSFSR: amendments

1996 – CBR becomes a BIS member

2001 – Law on AML/CFT

2002 – Law on the Central Bank of the Russian Federation

2003 – Russia becomes a FATF member – Start of the IFRS reporting project– Law on deposit insurance

2005 – Introduction of corridor for USD&EUR basket within the exchange rate policy framework

2009 – CBR becomes a BCBS member– CBR becomes a CPMI member

2010 – Introduction of floating exchange ratecorridor

2011 – Law on National Payment System

Focus on Russian financial market development

4

EVOLUTION (2)Monetary policy framework development


Exchange rate regime development

2006

Inflation targeting announced

Inflation targeting is represented as a midterm goal in the “Monetary Policy Guidelines”

2008

Active inflation targeting communications

2009

Liquidity management

Instruments are developed, the interest rate corridor is narrowed

1998 - 2008

Narrow band

2012

Transition deadline set

“Floating rate and inflation targeting by 2015”

2014

Floating exchange rate introduced

2008 - 2014

Flexible band

2013

Key rate introduced

Monetary policy framework development

2015

Transition to the inflation targeting regime is completed

Medium-term inflation target is around 4%

Since Nov. 2014

Free floating Ruble

Dec. 2017

Inflation below 4%

(2.5% - all-time low in July 2018)

Dec. 2018

Inflation 4.3%

5

EVOLUTION (3)Bank of Russia supervises the following key segments


Banking sector

Microfinance

Payment infrastructure

Asset managers

Credit rating agencies

Non-state pension funds

Securities market, including securities

market professionals

Insurance sector

Market infrastructure,

including fair pricing

6

REFORMSPromoting price and financial stability, fair competition, newest technologies and best practices


Inflation targeting regime adopted with a 4%medium-term target rate pursued using conventionalmonetary policy instruments

‒ Banking sector rehabilitation in progress, newbank resolution mechanism introduced

‒ Proportional regulation introduced and anadvanced IRB approach for the largest banksgradually phased in

‒ Banking regulation compliant with the Basel II,Basel 2.5 and Basel III standards, maintainingAML/CFT supervision of credit and non-creditfinancial institutions (according to theRegulatory Consistency Assessment Program(RCAP) 2016)

‒ New macroprudential regulation mechanism inforce – add-ons to risk ratios are introduced andset by the Bank of Russia Board of Directors

‒ Setting up a national rating industry - only creditratings of Russian national agencies may be usedfor regulatory purposes

JS companies segregation into public and non-public,corporate actions reform, new corporate governance codeadopted in 2014, listing rules based on the new corporategovernance code, listing committees established

‒ Benefits from infrastructure put in place, tax andregulatory reforms (T+2, CSD and access of ICSDs, up-to-date CCP, Individual Investment Accounts)

‒ Marketplace project infrastructure is developed –launch of the platform is planned for 2019

‒ Guarantee fund mechanism introduced‒ Investment horizon for non-state pension funds

extended to 5 years‒ Individual pension capital (IPC) accounts legislation is

under development

Monetary policy

Banking regulation and supervision

Market infrastructure

Corporate governance

Pension system

‒ Russian payment system infrastructure developed andcurrently in use by all leading international paymentsystems

‒ Payment infrastructure monitoring and supervision‒ System for transfer of financial messages (SPFS) has

been developed‒ The Faster Payments System launched in January 2019

Payment infrastructure

7

COMPLIANCE WITH INTERNATIONAL STANDARDSRussia complies with or implements key international standards and best practices


Banking regulation is compliant withBasel II, 2.5 and Basel III (RCAP 2016)

Russia’s Anti-Money Laundering system iscompliant with FATF Recommendations

Bank for International Settlements, IAIS andIOSCO Principles for financial marketinfrastructures (PFMI) are beingimplemented

High FSAP grades in all surveyed segments,including securities market, insurance andpayment infrastructure

Russia ranks#31 in DOING BUSINESS-2019Ratings (#35 in 2018)

National Settlement Depository is eligiblefor custody arrangements under Rule 17f-7of the US Investment Company Act of 1940

Russia is a party to the Articles ofAgreement of the IMF and upholds freemovement of capital

Insurance sector has started implementingSolvency II European principles

Upon monitoring the implementation ofthe PFMI, the CPMI gave Russia thehighest-possible ‘4’ rating

8

INTERNATIONAL COOPERATIONBank of Russia cooperates with international financial institutions, regulators and associations


G20

BRICS

9

• Implementation of integrated road map for developing competition in various sectors of Russian economy approved by the Government

• Building biometric database

• Credit history bureau reform

• Marketplace project launch

• Faster payment system in force

• Testing of digital identification platform

• “Regulatory sandbox” project development

• Bank of Russia’s withdrawal from the capital of banks undergoing resolution after their financial rehabilitation

FINANCIAL MARKET DEVELOPMENT STRATEGYGuidelines for the Development of the Russian Financial Market in 2019 - 2021


The Bank of Russia Guidelines for the Development of the Russian Financial Market in 2019 – 2021cover the following key areas and activities:

• Introduction of individual pension capital accounts

• Introduction of “green” bonds

• Crowdfunding

• Introduction of new rules for crediting private-public partnerships

• Development of concession projects

• Marketplace project launch

• Introduction of financial services access points map

• Development of remote identification and unified biometric system

• Development of electronic insurance services distribution channels

• Improving insurance services inclusion in Russian regions

• Involvement of financial consumer ombudsmen in disputes resolution

• Increase of personal responsibility of management

• Limited employment opportunities in financial sector for malicious (unscrupulous) people

• Development of qualified investor institute

• Increase of responsibility for substandard sale of financial products

• Unified financial transactions register

• Control for the population indebtedness and prevention excessive risk accumulation in the segment

• Risk-based approach to insurance market participants

• Widening the list of financial non-credit institutions subject to stress testing

• Improving the toolkit for macroprudential stress testing

10

Building reliable financial environment

Improving financial inclusion and availability of capital

Developing market competitiveness

Ensuring financial stability

NEWSLETTER (1)Key news from the Russian financial market


11 June 2019Starting from 1 October 2019, banks will be required to calculate customers’ PTI (payment-to-income) ratio. Add-onsto the risk ratios applied to consumer loans will be then set by the Bank of Russia depending on both the PTI and theeffective interest rate.

31 May 2019The Bank of Russia decided to raise required reserve ratios on liabilities to individuals in foreign currency for creditinstitutions by 1 percentage point to 8.0%, effective from 1 July 2019.

5 June 2019

Daily amount of regular foreign currency purchases in the domestic market under the fiscal rule is:

RUB 16.3 bn from 7 June until 4 July 2019 RUB 15.5 bn from 7 March until 4 April 2019

RUB 16.7 bn from 14 May until 6 June 2019 RUB 9.7 bn from 7 February until 6 March 2019

RUB 11.6 bn from 5 April until 13 May 2019 RUB 15.6 bn from 15 January until 6 February

28 January 2019The Faster Payments System launched and is set to enable individuals to make instant transfers to each other24/7/365 using a mobile phone number – regardless of in which banks the sender and recipient have their accounts.

25 January 2019The Bank of Russia decided to commence from 1 February 2019 deferred foreign currency purchases in the domesticmarket under the fiscal rule to compensate for the regular purchases suspended in 2018. These purchases will becarried out gradually in the 36 months since the launch date with the daily amount of RUB 2.8 bn.

1 January 2019

Capital conservation buffer will be raised in accordance with the schedule approved by the Bank of Russia – it willstand at 1.875% from 1 January 2019, 2.0% from 1 April 2019, 2.125% from 1 July 2019, 2.25% from 1 October2019, and 2.5% from 1 January 2020.

The SIFI capital buffer (applied to 11 systemically important Russian banks) will remain at 0.65% throughout 2019.

The minimum LCR requirements for SIFI raised from 90% to 100% in accordance with the Basel III standards.

The deposit insurance system will cover small enterprises’ funds up RUB to 1.4 mln deposited with Russian banksthat have joined the deposit insurance system.

Systemically important banks start to calculate the ratio of maximum concentration of exposure per borrower orgroup of related borrowers and report it to the Bank of Russia. Based of the results of monitoring this indicator, theBank of Russia will make a decision on the terms and specifics for setting it as a required ratio.

11

NEWSLETTER (2)Key news from the Russian financial market


28 December 2018The Bank of Russia has permitted Raiffeisenbank to use internal ratings-based (IRB) approach for the purpose ofcalculating regulatory capital (effective 1 Feb 2019).

21 December 2018Introduction of individual investment advisor as a new class of market players. Investment advisory services are subject to regulation. Services shall be provided on the basis of a contract and customer investment profile, taking into account the customer’s investment experience, targets and risk appetite.

21 December 2018The Bank of Russia raises risk weights on unsecured consumer loans extended after 1 April 2019 with the effective interest rate of 10% to 30%.

14 December 2018The Bank of Russia decided to resume regular foreign currency purchases in the domestic market under the fiscal rule that were suspended in 2018, starting 15 January 2019.

1 October 2018

The Bank of Russia completed transition to the new macroprudential regulation mechanism by introducing riskweight add-ons for capital adequacy calculation by credit institutions while bringing standard risk weights onassets in line with Basel III requirements (effective 8 Oct).

Risk weight add-ons for mortgage loans and loans for construction co-funding with LTV > 80% were set at 100%,i.e. 200% risk-weight will be applied to such loans extended after 1 January 2019. The buffer will only be effectiveas long as the loan-to-value ratio exceeds 80%.

The countercyclical capital buffer for Russian credit institutions is retained at 0% of risk-weighted assets.

25 July 2018 The Bank of Russia introduces 16 criteria of economic relations between related party-borrowers to calculate N6.

24 July 2018Higher requirements introduced to the minimum authorized capital for insurers: RUB 450 mln for life insurers, RUB300 mln for personal and property insurers and RUB 600 mln for reinsurers.

23 May 2018The Bank of Russia raises risk weights on FX loans and securities, effective from July 1, 2018 to: 110% (from 100%)for exporters, 150% (from 130%) for real estate purchase, 130% (from 110%) for other FX corporate loans.

12

RUSSIAN MACRO UPDATE

KEY INDICATORSClear signs of macro stabilization across the board


Source: Bank of Russia, Rosstat

Figure 1: Real GDP growth started to recover in 2016 (YoY, %)

Figure 4: Retail sales and real wages dynamics (YoY, %)Figure 3: Russian Ruble volatility remains low while in free-floating

Figure 2: Private consumption and investment dynamics (YoY, %)

14

4.3 3.7

1.8 0.7

- 2.5

0.3 1.6

2.3 1.5

1.0

-4

-2

0

2

4

6

8

2011 2012 2013 2014 2015 2016 2017 2018 2019Е

6.8

7.9 5.2

2.0

- 9.4

- 1.9 3

2.3

9.1

5.0

1.3 - 1.8

- 11.2

0.7

5.52.0

2.9

1.0

-15

-10

-5

0

5

10

15

2011 2012 2013 2014 2015 2016 2017 2018 2019Е

Private consumption Investments

1.51.0

-8.4

1.6

-4.4 1.2

-20

-15

-10

-5

0

5

10

15

12

.14

04

.15

08

.15

12

.15

04

.16

08

.16

12

.16

04

.17

08

.17

12

.17

04

.18

08

.18

12

.18

04

.19

Real wages Retail sales

62.564.3

30

40

50

60

70

80

90

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

06

.19

RU

B p

er 1

USD

691.7

468.8

527.7

495.2

200

300

400

500

600

700

800

02

.13

05

.13

08

.13

11

.13

02

.14

05

.14

08

.14

11

.14

02

.15

05

.15

08

.15

11

.15

02

.16

05

.16

08

.16

11

.16

02

.17

05

.17

08

.17

11

.17

02

.18

05

.18

08

.18

11

.18

02

.19

05

.19

External debt, $bn Reserves, $bn

MACROFINANCESolid fiscal and external positions


Source: Bank of Russia, Bloomberg, Ministry of Finance

Figure 5: Current account surplus amounted to USD 114 bn in 2018 Figure 6: Strong fiscal position: budget consolidation and fiscal rule

Figure 7: Significant international reserves assuring financial stability Figure 8: Sovereign debt to GDP lowest in both EM and DM spaces

External debt/GDP 2018 = 28.6% Reserves/GDP 2018 = 30.5%Reserves cover 16 months of importImport in 2018 = USD 344 bn

5.4

4.1

-6.0

-3.9

0.4

-0.2

-0.8

-0.7

-2.8-3.9

-1.3

2.7

20

40

60

80

100

120

-12

-8

-4

0

4

8

12

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Russian Federal Budget Balance, % of GDP, lhs Urals, $/bbl, rhs

15

72

114

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

98%109%

38%51%

8% 14%

0%

20%

40%

60%

80%

100%

120%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Developed countries Emerging countries Russia

-4%

0%

4%

8%

12%

16%

20%

24%

06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19

CPI Non-food products Food Services Key rate Medium-term inflation target

INFLATION Medium-term inflation target successfully met in 2017-2018


Source: Bank of Russia, Rosstat

Figure 9: Inflation (YoY, %)

January 2016: Oil prices reach their lowest level in a decade

Medium-term inflation target

16

* As of May 31, 2019

5.1%*

INFLATION EXPECTATIONSHouseholds and businesses inflation expectations remain elevated


Source: FOM, Rosstat, Bloomberg, Interfax, Thompson Reuters, Bank of Russia

17

2017 2018 2019

Horizon I II III IV Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Inflation expectations (absolute numbers), %

Households

FOM Next 12 months 11.2 10.3 9.6 8.7 8.9 8.4 8.5 7.8 8.6 9.8 9.7 9.9 10.1 9.3 9.8 10.2 10.4 10.1 9.1 9.4 9.3

FOM (observed inflation) Prev. 12 months 14.0 12.4 11.2 10.0 9.9 9.4 9.2 8.3 9.2 10.6 10.3 10.4 10.2 10.1 10.1 10.2 10.1 10.6 10.0 10.5 10.4

FOM (Bank of Russia calculations) Next 12 months 4.0 4.0 2.8 2.5 2.1 2.1 2.2 2.2 2.2 2.6 2.8 3.5 3.8 3.8 4.4 5.4 6.2 5.9 5.7 5.5 5.4

Professional analysts

Bloomberg 2019 4.0 4.0 4.2 4.4 4.7 4.5 4.6 4.5 4.7 4.6 4.7 4.5 4.5

Interfax 2019 3.6 3.7 3.8 4.1 4.0 4.1 4.3 4.4 4.3 4.2 4.4 4.7 4.8 4.7 4.6 4.5 4.5

Reuters 2019 3.9 3.9 4.0 4.3 4.5 4.5 4.5 4.7 5.0 4.8 4.8 4.8 4.8 4.6

Financial markets

OFZ IN (option not subtracted) 2023 4.9 4.6 4.2 5.1 4.0 3.9 3.8 4.1 4.2 4.5 4.6 5.2 5.3 5.1 5.1 5.1 5.1 5.0 4.9 4.6 4.3

OFZ IN (option not subtracted) 2028 4.3 4.6 4.6 5.0 5.4 5.2 5.2 5.1 4.9 4.9 4.8 4.7 4.3

Inflation expectations (balanced index*)

Households

FOM Next 12 months 0.0 -1.3 -5.5 -5.3 -5.6 -0.5 -0.4 1.0 3.7 10.3 8.2 10.2 6.3 8.9 11.6 14.8 14.5 11.9 9.2 13.0 13.3

FOM Next month -12.2 -12.3 -16.1 -16.1 -23.0 -18.0 -14.6 -16.5 -11.7 -3.4 -8.4 -4.9 -4.8 -5.5 -5.9 -3.3 1.6 -6.6 -7.9 -6.7 -8.9

Businesses

Bank of Russia monitoring Next 3 months 7.9 8.6 7.5 7.3 6.8 6.3 7.0 8.8 10.1 10.3 11.0 11.2 12.5 13.0 13.7 16.1 18.1 12.7 11.0 9.9 9.5

PMI input prices Next month 7.8 9.0 12.2 10.6 9.2 11.4 12.2 27.4 27.2 28.4 21.6 22.8 24.2 23.4 22.6 22.0 35.0 26.8 23.6 19.8 14.2

PMI output prices Next month 1.0 3.4 6.8 3.0 2.8 2.8 4.0 13.6 6.4 6.6 8.2 6.6 5.8 7.6 7.6 5.6 20.4 14.4 10.0 8.8 5.6

Retail prices (Rosstat) Next quarter 27 24 24 22 - - 20 - - 20 - - 20 - - 19 - - 21 -

Tariffs (Rosstat) Next quarter 4 3 0 0 - - 5 - - 5 - - 0 - - 1 - - … -

Change:

- Inflation expectations become better (more than 1 standard deviation)

- Inflation expectations become better (less than 1 standard deviation)

- Inflation expectations unchanged (±0,2 standard deviations)

- Inflation expectations become worse (less than 1 standard deviation)

- Inflation expectations become worse (more than 1 standard deviation)

*Balanced index is the difference between the shares of those who expect prices to rise and to fall

Key parameters of the Bank of Russia’s forecast scenarios

(growth as % of previous year, if not indicated otherwise)

2018

(actual)

BASELINE HIGH OIL PRICES

2019 2020 2021 2019 2020 2021

Urals price, average for the year, US dollars per barrel 69.8 65 60 55 70 75 75

Inflation, as % in December year-on-year 4.3 4.2-4.7 4.0 4.0 4.2-4.7 4.0 4.0

Inflation, average for the year, as % year-on-year 2.9 4.7-4.9 4.0 4.0 4.7-4.9 4.0 4.0

Gross domestic product 2.3 1.0-1.5 1.8-2.3 2.0-3.0 1.0-1.5 2.0-2.5 2.0-3.0

Final consumption expenditure 1.8 1.0-1.5 1.8-2.3 2.0-2.5 1.0-1.5 2.0-2.5 2.0-2.5

– households 2.3 1.0-1.5 1.8-2.3 2.5-3.0 1.0-1.5 2.3-2.8 2.5-3.0

Gross capital formation 0.8 0.5-1.5 3.5-4.5 3.5-4.5 0.5-1.5 3.5-4.5 3.5-4.5

– gross fixed capital formation 2.9 1.0-2.0 3.5-4.5 3.5-4.5 1,0-2,0 3.5-4.5 3.5-4.5

Exports 5.5 0.8-1.3 2.7-3.2 2.7-3.2 0.8-1.3 2.7-3.2 2.7-3.2

Imports 2.7 1.0-1.5 3.8-4.2 4.5-5.0 1.0-1.5 4.0-4.5 4.5-5.0

Money supply in national definition 11.0 8-12 7-12 7 – 12 9-13 8-13 8-13

Claims on organisations and households in rubles and foreign currency1 11.5 8-12 7-12 7 – 12 9-13 7-12 7-12

– claims on non-financial and financial organisations in rubles and foreign currency, growth as % over year

8.4 7-10 6-10 6 – 10 8-11 6-10 6-10

– claims on households in rubles and foreign currency,growth as % over year

22.0 15-20 11-16 10 – 15 16-21 12-17 10-15

ECONOMIC FORECASTS (1)Medium-term outlook for the Russian economy


Source: Bank of Russia

18

1Banking sector claims on organisations and households means all of the banking sector’s claims on non-financial and financial institutions and households in the currency of the Russian Federation, a foreign currency and precious metals, including loans issued (including overdue loans), overdue interest on loans, credit institutions’ investment in debt and equity securities and promissory notes, as well as other forms of equity interest in non-financial and financial institutions, and other accounts receivable from settlement operations involving non-financial and financial institutions and households.

ECONOMIC FORECASTS (2)Medium-term outlook for the Russian economy



19

Russia’s balance of payments indicators1

(billions of US dollars)

2018 (actual)

BASELINE HIGH OIL PRICES

2019 2020 2021 2019 2020 2021

Current account 114 98 72 50 106 112 103

Balance of trade 194 184 160 139 190 203 199

Exports 443 434 424 415 443 475 493

Imports 249 250 264 276 253 272 294

Balance of services -30 -33 -37 -37 -31 -35 -40

Exports 65 62 63 66 66 70 73

Imports 95 95 100 103 97 105 113

Balance of primary and secondary income -51 -53 -51 -52 -53 -56 -56

Current and capital account balance 113 98 72 50 106 112 103

Financial account (excluding reserve assets) 77 32 16 7 32 29 24

Government and the central bank 9 -18 -6 -6 -18 -6 -6

Private sector 68 50 22 13 50 35 30

Net errors and omissions 3 0 0 0 0 0 0

Change in reserve assets ('+' – increase, '-' –decrease)

38 66 56 43 74 83 79

1 Using the methodology of the 6th edition of “Balance of Payments and International Investment Position Manual” (BPM6). In the Financial account “+” stands for net lending, “-” – for net borrowing. Due to rounding total results may differ from the sum of respective values.

MONETARY POLICYShort-term proinflationary risks have abated compared to March


Inflation and inflation expectations• Annual inflation slowdown is continuing. CPI declined in May to 5.1% YoY and stood at 5.0% YoY as of 10 June. • Starting in February, MoM SA consumer price growth has remained close to 4% (annualised).• In May, households’ and business inflation expectations did not materially change and remain elevated.• The Bank of Russia has lowered its end-of-year annual inflation forecast for 2019 from 4.7-5.2% to 4.2-4.7%.• The revised forecast takes into account the completion of the VAT increase pass-through to prices (including

the influence of secondary effects) and the preservation of relatively favourable external conditions and moderate dynamics of domestic demand.

• Moving on, according to the Bank of Russia’s forecast, annual inflation will stay close to 4%.

Monetary conditions: • Monetary conditions have somewhat eased since the last Board meeting.• OFZ yields and deposit rates have declined. The potential for lending rates growth has mostly exhausted.• The Bank of Russia’s decision to cut the key rate and the year-to-date decline in OFZ yields create conditions

for the decline of deposit and lending rates in the future.

Economic activity• Economic growth in 1H 2019 is lower than the Bank of Russia’s expectations.• During the first four months of 2019, the growth in general government income outperformed the growth in

expenses, which, in part, is due to the shift to 2H 2019 of the implementation of a number of national projects.• Taking into account GDP growth statistics for 2018 — 2019 Q1 published by Rosstat, the Bank of Russia

lowered its GDP growth forecast for 2019 from 1.2-1.7% to 1.0-1.5%.

Internal risks• The effects of the VAT hike have fully materialised (↓)• Elevated and unanchored inflation expectations• Medium-term fiscal policy parameters

Moderate risks – estimates are mostly unchanged: • Wage movements• Prices of individual food products• Possible changes in consumer behavior

External risks• Risks of persistent capital outflows from

emerging markets (↓)• Slowdown in global economic growth• Geopolitical factors• The volatility of global oil prices

Decisionas of June 14, 2019

The Bank of Russia cuts the key rate by 25 bp

to 7.50% p.a.

Signal

“…If the situation develops in line with the baseline forecast, the

Bank of Russia admits the possibility of further key rate

reduction at one of the upcoming Board of Directors’ meetings and a transition to neutral monetary

policy until mid-2020.

In its key rate decision-making, the Bank of Russia will take into

account actual and expected inflation dynamics relative to the

target and economic developments over the forecast

horizon, as well as risks posed by domestic and external conditions

and the reaction of financial markets…”

20

FINANCIAL SECTOR OVERVIEW

BANKING SECTOR: CURRENT AGENDAShaping a favourable operating environment and supporting market competition


Proportional banking regulation: differentiating regulatory burden for banks based on their size and simplifying requirements for smaller banks

focused on retail and SME lending

New resolution mechanism: reducing financial costs and execution period of the resolution

procedure

Imminent introduction of PTI ratio in order to affect the consumer lending market more

efficiently

Development of banking supervision: introduction of the Basel Committee on Banking

Supervision (BCBS) standard on capital requirements for banks` equity investment in

funds (since December 16, 2017)

Risk-oriented supervision: aiming to remedy problematic situations in banks at an early stage

Development of macroprudential regulation: streamlining the regulation, introducing

countercyclical approach

New regulations to the credit bureaus: authorising several strategic credit bureaus with the function of aggregating information on debt

payments

Basel II and III in force: Leverage ratio (except for banks with basic license), NSFR – for Domestic-

SIBs

22

UNIVERSAL LICENSE

BANKING SECTOR: PROPORTIONAL REGULATIONDifferentiating regulatory burden for banks depending on their size


BASIC LICENSE

On 1 June 2017, Federal Law No. 92-FZ dated 1 May 2017 came into force. It envisages the introduction of proportional regulation designed to set up a regulatory balance for banks differing in scale and in the nature of operations. 149 banks hold basic license, as of December 2018.

Regulatory burden depending on license type

• Minimum size of capital (own funds) –RUB 300 mln

• Only 5 mandatory requirements, including H1.0, H1.2, H3, H6, H25 ratios

• Limitations on international operations

• Simplified disclosure rules - not required to disclose information on accepted risks, their assessment or management procedures, or any information on financial instruments included in the calculation of their own funds (capital)

• Technically complicated international standards are non applicable

• Minimum size of capital (own funds) – RUB 1 bln

• May carry out all banking operations set forth by the law

• All mandatory requirements set by the Bank of Russia must be met

• Must be compliant with all international standards

• Financial reporting fully compliant with RAS and IFRS

• Higher capital adequacy requirements

• Advanced risk management approach

Systemically important financial institutions (SIFI) are subject to:

23

RUB 2.6 tn have been provided to three banking

groups (Otkritie, B&N, Promsvyazbank)

RUB 758.3 bnfor additional capitalization

RUB 1.86 tn

for liquidity (deposits)*

BANKING SECTOR: NEW RESOLUTION MECHANISMUnder new mechanism both costs of resolution and time required have been reduced significantly


* Have been fully repaid by the end of 2018

**BNA – Bank of non-core assets based on NB TRUST, ROST BANK and Bank AVB

Additional

RUB 379.1 bn

RUB 156.1 bn for the establishment of BNA**

RUB 42.7 bn for additional capitalization of Otkritie Bank

RUB 9.0 bn for additional capitalization of APB

RUB 128.7 bn for additional capitalization for MIB and RUB 39.9 bn

for liquidity (deposits)

RUB 2.7 bn for additional capitalization for VOCBANK

List of banks under financial rehabilitation procedure

1 Bank FC Otkritie (merged with B&N Bank)

2 Promsvyazbank

3 National Bank TRUST (with ROST Bank and AVB Bank)

4 Asian-Pacific Bank (APB)

5 Moscow Industrial Bank (MIB)

6 Volga-Oka Bank (VOCBANK)

On July 2, 2019, the Bank of Russia’s Board of Directors has decided tocomplete the implementation of bankruptcy prevention measures forBank FC Otkritie. Currently, the Bank complies with all Bank of Russia’sstatutory requirements for financial resilience and creditworthiness.

Promsvyazbank complies with all capital adequacy and liquidityrequirements and operates its business in its usual way. The bank fullyrepaid CBR deposits placed in the bank during resolution process.

As a result of the financial resolution measures and implementationof a new business model in the Asian-Pacific Bank, its financial standinghas been stabilised, new capital has been formed, outflow of its clients’funds has been stopped, its solvency has been restored and the Bank’sprofitability has become stable. The Bank is supposed to be sold in 2020after it discloses information about its 2019 performance to the public,including potential investors.

On 12 July 2019, the Bank of Russia approved amendments to the plan ofits participation in bankruptcy prevention measures for the MoscowIndustrial bank (MIB). These amendments provide for the Bank of Russiato allocate 128.7 billion rubles for recapitalisation purposes.

24

*YoY, ccy adj. by credit institutions operating as of the reporting date

BANKING SECTOR: KEY FIGURESActive supervision and tighter regulation allowed to strengthen the health of the banking sector



Figure 10: In 2013-2018 more than 400 licenses were revoked causing almost no impact on the banking sector’s total assets

Figure 11: Banking sector profitability restored to record high levels

Figure 12: Loans and deposits volume (RUB tn) and growth rates Figure 13: Banks hold an acceptable level of capital under Basel III

25

978

467*

41.6

92.9

0

16

32

48

64

80

96

112

0

200

400

600

800

1000

1200

2011 2012 2013 2014 2015 2016 2017 2018 5m19

Number of credit institutions, lhs Banking sector assets, RUB tn, rhs

*423 banks and 44 non-banking credit organisations

43.0

49.7

46.456.2

2.6%

11.7%

10.3%7.1%

-4

-1

2

5

8

11

14

30

35

40

45

50

55

60

1.1

2.1

5

1.0

3.1

6

1.0

6.1

6

1.0

9.1

6

1.1

2.1

6

1.0

3.1

7

1.0

6.1

7

1.0

9.1

7

1.1

2.1

7

1.0

3.1

8

1.0

6.1

8

1.0

9.1

8

1.1

2.1

8

1.0

3.1

9

1.0

6.1

9

Corporate and retail loans, lhs Corporate and retail deposits, lhsLoans YoY growth*, % rhs Deposits YoY growth*, % rhs

*excluding credit institutions under financial rehabilitation procedure

13.5 13.7

12.512.7

13.1

12.1 12.2 12.1

14.2* 14.5* 14.5*

9

10

11

12

13

14

15

2012 2013 2014 2015 2016 2017 2018 1.05.19

Capital adequacy ratio, N1.0, %

994867

1.91.9

15.216.8

-4

-1

2

5

8

11

14

17

0

200

400

600

800

1 000

1 200

1 400

2013 2014 2015 2016 2017 2018 5m2019

Profit, bln RUB, lhs ROA, rhs ROE, rhs

23.2

28.8

19.2%

7.8%

0%

5%

10%

15%

20%

25%

30%

18

20

22

24

26

28

30

1.0

1.1

6

1.0

4.1

6

1.0

7.1

6

1.1

0.1

6

1.0

1.1

7

1.0

4.1

7

1.0

7.1

7

1.1

0.1

7

1.0

1.1

8

1.0

4.1

8

1.0

7.1

8

1.1

0.1

8

1.0

1.1

9

1.0

4.1

9

Retail deposits, RUB tn, lhsYoY (ccy adj., by credit institutions operating as of the reporting date), rhs

1.0

6.1

9

1.0

6.1

9

27.1 27.3

3.8%

6.4%

-10%

-5%

0%

5%

10%

15%

20%

18

20

22

24

26

28

30

1.0

1.1

6

1.0

4.1

6

1.0

7.1

6

1.1

0.1

6

1.0

1.1

7

1.0

4.1

7

1.0

7.1

7

1.1

0.1

7

1.0

1.1

8

1.0

4.1

8

1.0

7.1

8

1.1

0.1

8

1.0

1.1

9

1.0

4.1

9

Corporate deposits, RUB tn, lhs

YoY (ccy adj., by credit institutions operating as of the reporting date), rhs

1.0

6.1

9

BANKING SECTOR: FUNDING The funding of the banking sector mostly comes from corporate and retail deposits



Figure 14: In May 2019 corporate deposits grew by 6.4% YoY to RUB 27.3 tn

Figure 15: In May 2019 retail deposits demonstrated growth of 7.8% YoY, reaching RUB 28.8 tn

Figure 16: Operations with the Bank of Russia, tn RUB Figure 17: Sources of funding, % of total liabilities

26

23.8%

30.2%12.0%

34.0%

Retail deposits Corporate deposits

Central bank funding Other sources

-2.90

3.03

-5.5

-3.5

-1.5

0.5

2.5

4.5

6.5

1.0

1.1

6

1.0

4.1

6

1.0

7.1

6

1.1

0.1

6

1.0

1.1

7

1.0

4.1

7

1.0

7.1

7

1.1

0.1

7

1.0

1.1

8

1.0

4.1

8

1.0

7.1

8

1.1

0.1

8

1.0

1.1

9

1.0

4.1

9

Borrowings from the Bank of Russia (with minus sign)Claims to the Bank of RussiaNet claims to the Bank of Russia, rhs

31.01%

29.43%

2.79%

36.77%

As of 1.01.2015 As of 1.06.2019

9.1%

12.4%92.3%

82.9%

80.0%

82.5%

85.0%

87.5%

90.0%

92.5%

95.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1.0

1.1

6

1.0

4.1

6

1.0

7.1

6

1.1

0.1

6

1.0

1.1

7

1.0

4.1

7

1.0

7.1

7

1.1

0.1

7

1.0

1.1

8

1.0

4.1

8

1.0

7.1

8

1.1

0.1

8

1.0

1.1

9

1.0

4.1

9

1.0

5.1

9

Share of bad loans, lhs Loan loss reserves to bad loans ratio, rhs



Figure 18: Corporate lending has stabilized around 6.7% YoY Figure 19: Retail lending increased 23.7% YoY in May 2019

Figure 20: Share of bad corporate loans* reached 12.4%, while the loan loss reserves to bad loans ratio amounted to 82.9%

Figure 21: Retail loans portfolio demonstrates improved quality: the share of bad loans* reached 7.5%

BANKING SECTOR: LENDING Retail loans remain the key driver of credit growth

* Loans classified into quality category of IV and V according to the requirements of Regulation No.590-P2.

Quality category IV – high credit risk (probability of financial losses due to non-performance or improper performance of obligations by the borrower requires its depreciation by 51 to 100 per cent);

Quality category V – no possibility of loan repayment due to the borrower’s inability or refusal to meet loan commitments, which requires complete (100 per cent) depreciation of the loan.

27

32.333.6

5.8% 6.7%

-30%

-20%

-10%

0%

10%

20%

30%

26.5

28.0

29.5

31.0

32.5

34.0

35.5

1.1

2.1

5

1.0

3.1

6

1.0

6.1

6

1.0

9.1

6

1.1

2.1

6

1.0

3.1

7

1.0

6.1

7

1.0

9.1

7

1.1

2.1

7

1.0

3.1

8

1.0

6.1

8

1.0

9.1

8

1.1

2.1

8

1.0

3.1

9

1.0

6.1

9

Corporate loans, RUB tn, lhs


10.7

16.1

-5.4%

23.7%

-10%-5%0%5%10%15%20%25%

9.510.511.512.513.514.515.516.5

1.1

2.1

5

1.0

3.1

6

1.0

6.1

6

1.0

9.1

6

1.1

2.1

6

1.0

3.1

7

1.0

6.1

7

1.0

9.1

7

1.1

2.1

7

1.0

3.1

8

1.0

6.1

8

1.0

9.1

8

1.1

2.1

8

1.0

3.1

9

1.0

6.1

9

Retail loans, RUB tn, lhs

YoY (by credit institutions operating as of the reporting date), rhs

12.9%

7.5%95.6%

111.3%

90.0%

94.0%

98.0%

102.0%

106.0%

110.0%

114.0%

6.5%7.5%8.5%9.5%

10.5%11.5%12.5%13.5%

1.0

1.1

6

1.0

4.1

6

1.0

7.1

6

1.1

0.1

6

1.0

1.1

7

1.0

4.1

7

1.0

7.1

7

1.1

0.1

7

1.0

1.1

8

1.0

4.1

8

1.0

7.1

8

1.1

0.1

8

1.0

1.1

9

1.0

4.1

9

1.0

5.1

9

Share of bad loans, lhs Loan loss reserves to bad loans ratio, rhs

16.9%

8.6%

103.6%

127.0%

100%

105%

110%

115%

120%

125%

130%

8%

10%

12%

14%

16%

18%

20%

1.0

1.1

6

1.0

3.1

6

1.0

5.1

6

1.0

7.1

6

1.0

9.1

6

1.1

1.1

6

1.0

1.1

7

1.0

3.1

7

1.0

5.1

7

1.0

7.1

7

1.0

9.1

7

1.1

1.1

7

1.0

1.1

8

1.0

3.1

8

1.0

5.1

8

1.0

7.1

8

1.0

9.1

8

1.1

1.1

8

1.0

1.1

9

1.0

3.1

9

1.0

5.1

9

NPL ratio, lhs Loan loss reserves to bad loans ratio, rhs



BANKING SECTOR: UNSECURED CONSUMER LENDINGThe unsecured lending market is at an ascending stage of the credit cycle

Figure 22: Accelerated growth of the unsecured consumer lending continues

Figure 23: Share of NPLs decreased to 8.6%

Against the background of advancing growth in unsecuredconsumer lending relative to households’ income, The Bank ofRussia revised the scale of risk weights for such loans in 2017-2018in order to prevent excessive risk-taking in this segment

100 100 110140

300%

600%

+10+10+20

+30+50

+60

+30+30

+30+30

0

100

200

300

400

500

600

10-15% 15-20% 20-25% 25-30% 30-35% 35%+

Effective interest rate

March 1, 2017 May 1, 2018 September 1, 2018 April 1, 2019

150%170%

200%230%

Figure 24: Risk weights applied to unsecured consumer loans, %

28

5.6

7.9

-11.4%

25.3%

-12%-6%0%6%12%18%24%30%

4.55.05.56.06.57.07.58.0

1.0

1.1

6

1.0

3.1

6

1.0

5.1

6

1.0

7.1

6

1.0

9.1

6

1.1

1.1

6

1.0

1.1

7

1.0

3.1

7

1.0

5.1

7

1.0

7.1

7

1.0

9.1

7

1.1

1.1

7

1.0

1.1

8

1.0

3.1

8

1.0

5.1

8

1.0

7.1

8

1.0

9.1

8

1.1

1.1

8

1.0

1.1

9

1.0

3.1

9

1.0

5.1

9

Unsecured consumer loans, RUB tn, lhs

YoY (by credit institutions operating as of the reporting date), rhs

100 100150

+50 +50

+150

+50 +50

0%

50%

100%

150%

200%

250%

300%

Loans for financing underequity construction

agreements withdown payment <20%

Mortgages withLTV>80%

Mortgages withLTV>90%

end 2017 January 1, 2018 January 1, 2019



BANKING SECTOR: MORTGAGE SEGMENTMortgage lending is characterised by high growth rates and decent asset quality

Figure 26: Share of NPLs remains at historically low levels Figure 25: Mortgage loans keep growing fast

Figure 27: Distribution of mortgage borrowers by LTV Figure 28: Risk weights applied to mortgage loans

200%

300%

200%

29

LTV interval

4.1

7.0

12.0%

23.3%

0%

5%

10%

15%

20%

25%

30%

1

2

3

4

5

6

7

1.0

1.1

6

1.0

3.1

6

1.0

5.1

6

1.0

7.1

6

1.0

9.1

6

1.1

1.1

6

1.0

1.1

7

1.0

3.1

7

1.0

5.1

7

1.0

7.1

7

1.0

9.1

7

1.1

1.1

7

1.0

1.1

8

1.0

3.1

8

1.0

5.1

8

1.0

7.1

8

1.0

9.1

8

1.1

1.1

8

1.0

1.1

9

1.0

3.1

9

1.0

5.1

9

Mortgage loans, RUB tn, lhs


3.0%

1.5%

113.0%

141.8%

112%

117%

122%

127%

132%

137%

142%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1.0

1.1

6

1.0

3.1

6

1.0

5.1

6

1.0

7.1

6

1.0

9.1

6

1.1

1.1

6

1.0

1.1

7

1.0

3.1

7

1.0

5.1

7

1.0

7.1

7

1.0

9.1

7

1.1

1.1

7

1.0

1.1

8

1.0

3.1

8

1.0

5.1

8

1.0

7.1

8

1.0

9.1

8

1.1

1.1

8

1.0

1.1

9

1.0

3.1

9

1.0

5.1

9

NPL ratio, lhs Loan loss reserves to bad loans ratio, rhs

0.6% 2.1%4.1%

7.1%9.7%

11.9%

22.6%

40.6%

1.2%

0%

7%

14%

21%

28%

35%

42%

10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% >90%

4Q2017 1Q2018 2Q2018

3Q2018 4Q2019 1Q2019

PTI interval, %

EIR

inte

rval

, %

0-30 30-40 40-50 50-60 60-70 70-80 80+

0-10 0.3 0.3 0.3 0.6 0.7 0.9 1.1

10-15 0.5 0.5 0.5 0.7 0.8 1.0 1.2

15-20 0.7 0.7 0.7 1.1 1.3 1.4 1.6

20-25 1.0 1.0 1.0 1.5 1.7 1.8 2.0

25-30 1.3 1.3 1.3 1.8 1.9 2.0 2.2

30-35 2.0 2.0 2.0 2.1 2.2 2.3 2.5

35+ 5.0 5.0 5.0 5.0 5.0 5.0 5.0

30

BANKING SECTOR: INTRODUCTION OF PTI The Bank of Russia introduces a payment to income ratio for regulation purposes



Effective from 1 October 2019, the Bank of Russia intends to set add-ons to the risk coefficients depending on the payment to income ratio (PTI) and the effective interest rate (EIR).

EIR interval, % 0-10 10-15 15-20 20-25 25-30 30-35 35+

Value of add-ons 0.6 0.7 1.1 1.5 1.8 2.1 5.0

Values of add-ons to the risk coefficients applied to unsecured consumer loans subject to calculation of PTI

Values of add-ons to the risk coefficients applied to unsecured consumer loans for which PTI calculation is not obligatory

Higher level of add-ons will be applied toloans with PTI exceeding 50%.

Banks will calculate PTI in accordancewith Appendix 1 to Bank of RussiaOrdinance No.4892 U when making adecision on granting a loan in theamount (total credit amount) of ₽10,000or more or an increase in the total creditamount on a bank card.

48.6%

37.1%

28.5%

21.3%

15.0%17.5%20.0%22.5%25.0%27.5%30.0%32.5%

35.0%37.5%40.0%42.5%45.0%47.5%50.0%52.5%

1.1

2.1

5

1.0

3.1

6

1.0

6.1

6

1.0

9.1

6

1.1

2.1

6

1.0

3.1

7

1.0

6.1

7

1.0

9.1

7

1.1

2.1

7

1.0

3.1

8

1.0

6.1

8

1.0

9.1

8

1.1

2.1

8

1.0

3.1

9

1.0

6.1

9

Share of FX deposits in total corporate depositsShare of FX deposits in total retail deposits

BANKING SECTOR: DEDOLLARISATIONDollarization of the banking sector has notably reduced over the last years



Figure 31: Share of corporate and retail FX deposits in total amount of deposits has fallen

Figure 30: Retail FX loan portfolio is insignificant in sizeFigure 29: Corporate FX lending declined significantly over the past few years

Figure 32: Risk weights applied to the FX assets, %

4.25 4.25

1.75 2.751

11

8% 8%

Reserve requirements

July 1, 2019August 1, 2018August 1, 2016

end 2015

100 100 100 100

+10+30

+50

+10

+20

+20

40

60

80

100

120

140

160

FX loans toexporters

Other corporateFX loans

Commercial FXmortgages

Securities of non-resident

companies

end 2015 May 1, 2016 July 1, 2018

110%

130%

150% 150%

31

Retail Corporate

182.5

133.3

37.4%25.8%

25.0%27.5%30.0%32.5%35.0%37.5%40.0%42.5%

120130140150160170180190

1.1

2.1

5

1.0

3.1

6

1.0

6.1

6

1.0

9.1

6

1.1

2.1

6

1.0

3.1

7

1.0

6.1

7

1.0

9.1

7

1.1

2.1

7

1.0

3.1

8

1.0

6.1

8

1.0

9.1

8

1.1

2.1

8

1.0

3.1

9

1.0

6.1

9

Corporate loans, USD bn, lhs Share of FX loans in total amount of loans, rhs4.1

1.5

2.5%

0.6%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.1

2.1

5

1.0

3.1

6

1.0

6.1

6

1.0

9.1

6

1.1

2.1

6

1.0

3.1

7

1.0

6.1

7

1.0

9.1

7

1.1

2.1

7

1.0

3.1

8

1.0

6.1

8

1.0

9.1

8

1.1

2.1

8

1.0

3.1

9

1.0

6.1

9

Retail loans, USD bn, lhs Share of FX loans in total amount of loans, rhs

43.9

13.7

0

5

10

15

20

25

30

35

40

45

50

lessthan

300 mlnrub

300 - 1bln rub

1-10bln rub

10 - 25bln rub

25 - 50bln rub

50 - 100bln rub

100 -250 bln

rub

morethan

250 blnrub

%

Capital adequacy ratio N1.0 (by capital size)

Capital adequacy ratio N1.0 as of 1.01.2018 (12.1%)

12.1

BANKING SECTOR: CAPITAL ADEQUACYHigh quality capital base and solid capital adequacy levels under Basel III standards


Figure 33: Capital adequacy ratio for the banking sector decreased over from 12.9% (1.01.16) to 12.1% (1.05.19) mostly due to the procedures of financial rehabilitation of the large credit institutions

Figure 34: Credit organizations with capital exceeding RUB 25 bn have lower buffer vs N1.0 minimum requirement due to the economies of scale


32

9 009

10 234

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

11 000

0

2

4

6

8

10

12

14

16

01

.16

04

.16

07

.16

10

.16

01

.17

04

.17

07

.17

10

.17

01

.18

04

.18

07

.18

10

.18

01

.19

04

.19

RU

B b

n

%

Ratio of own funds (capital) to risk-weighted assets (Basel III N1.0 ratio)Tier I capital ratio (N1.2)Common equity Tier I capital ratio (N1.1)

Own funds (Basel III capital), RUB bn, rhs

12,9

8,9

8,7

12,1

9,6

8,9

BANKING SECTOR: SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONSThe Bank of Russia has approved the list of SIFI and buffers for capital adequacy ratios



Capital adequacy requirements List of systemically important financial institutions

№ Company name Assets, RUB tn1 Sberbank 26.9

2 VTB Bank 13.7

3 Gazprombank 6.3

4 Alfa-Bank 3.2

5 Russian Agricultural Bank 3.2

6 Credit Bank of Moscow 2.1

7 Bank FC Otkritie 1.9

8 Promsvyazbank 1.6

9 UniCredit Bank 1.310 Raiffeisenbank 1.1

11 Rosbank 1.0

Minimum Bank of Russia requirements for capital adequacy ratios

Common equity Tier 1 capital ratio (N1.1) 4.50%

Tier 1 capital (N1.2) 6.00%

Total capital adequacy ratio (N1.0) 8.00%

Values of capital buffers 2017 2018 2019Capital concervation buffer 1.25% 1.875% 2.50%*SIFI buffer 0.35% 0.65% 0.65%Countercyclical buffer 0% 0% 0%

Minimum capital adequacy ratios for SIFI 2017 2018 2019N1.1 6.1% 7.0% 7.65%N1.2 7.6% 8.5% 9.15%N1.0 9.6% 10.5% 11.15%Systemically important financial institutions account for

over 60% of total assets of the Russian banking sector

*Capital conservation buffer will be raised in accordance with theschedule approved by the Bank of Russia – it will stand at 1.875% from 1January 2019, 2.0% from 1 April 2019, 2.125% from 1 July 2019, 2.25%from 1 October 2019, and 2.5% from 1 January 2020.

33

FINANCIAL STABILITYMacroprudential policy aimed at Identifying and preventing potential systemic risks


Credit activity

As the pace of recovery remains inconsistent across lending segments in Russia, credit-to-GDP gap for both corporate and retail lending (a difference between the actual credit-to-GDP ratio adjusted to currency revaluation, and the long-run trend) is still estimated as negative. This shows that lending remains below the long-term trend.

Retail lending risks

Unsecured consumer lending continued to grow at a high pace. Outstanding loans increased 25.3% inyear-on-year terms in April 2019 to the amount of RUB 7.9tn. The Bank of Russia’s Board of Directorshas decided to increase add-ons to the risk weights for unsecured consumer loans bearing aneffective interest rate of 10-30% by 30bps for loans extended from 1 April 2019.

Mortgage loans grow at a steady rate, however, borrowers’ debt burden remaining at the same levelshows that the current growth does not present any significant risk to the financial stability. The Bankof Russia aims to prevent the build-up of risks related to loans with a high loan-to-value ratio, thus therisk weights for such loans issued after 1 January 2019 were raised from 150% to 200%. Thesemeasures are aimed at sustainable development of the mortgage lending segment.

Capital adequacy

The capital adequacy (Basel III N1.0 ratio) for the banking sector remains at comfortable level of12.1% as of 1 May, 2019.

Rising risk weights for specific credit requirements results in banks increasing their capital reserves to cover potential losses. Therefore considering the uneven recovery of lending,

there is no need for a positive countercyclical buffer for credit institutions yet.

Decision

The Bank of Russia’s Board of Directors has decided to keep the countercyclical capital buffer (CCB)

rate for Russian credit institutions at 0% of risk weighted assets

34

SECURITIES MARKET (1)Russia’s financial market has been aligned with best international practices


• MICEX and RTS merged into the MoscowExchange

• Establishment of a Central SecuritiesDepository and unification of CCP acrossall asset classes

• T+2 settlement on equities, T+1 on OFZs,T+0 on corporate bonds

• Euroclear and Clearstream settlement for equities and bonds

• Unified collateral pool for equities, bonds and FX markets

• International clearing system membership; Direct access to FX trading for large corporates

• Local investor base development (individual investment account system, tax incentives, etc.)

• Unified license covering both depository and registrar operations.

• Creation of a two-tier Quotation List within the stock exchange listing

• Strong criteria for inclusion in the top-tier Quotation list

• Streamlined dividend rules for SOEs• Corporate standards aligned with best

international practices• Establishing of a Listing Committee at MOEX

• Mandatory audited IFRS for all public companies

• Strengthened regulation to prevent market manipulation and insider trading

• Improved disclosure practices• Report on Corporate Governance Code

compliance in the annual report• Requirement to have a written description of

dividend policy for the top-tier Quotation list• Development of basic standards for

professional market participants activities

Crisis-proven market infrastructure

Upgraded corporate governance

Simplified market access

Increased transparency

35

8.710.8

15.3

10.6 11.213.2

16.5

21.2

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018

Equity market trading volume, RUB tn

Bond market trading volume*, RUB tn

2.2 2.9 3.1 3.5 3.9 4.7 5.0 5.57.2 7.92.5

3.0 3.6 4.35.3

6.68.1

9.2

11.111.9

0

4

8

12

16

20

24

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

OFZ Corporate Bonds

SECURITIES MARKET (2)Growing a deeper Russian bond market with strong potential


* Except overnight bondsSource: Cbonds, Moscow Exchange

Figure 35 : Volume of the Russian local bond market, RUB tn

Figure 37: “Bondization” of the Russian financial market Figure 38: Corporate loans vs corporate bonds in Russia, RUB tn

36

4.75.9 6.7

7.89.2

11.313.1

14.7

18.319.8

CAGR+20%

2.9 3.2 3.64.5

5.9

9.310.2 9.7

11.5 11.9

2.53.0

3.54.2

5.2

6.7

8.0 8.07.6 7.6

0

4

8

12

16

20

24

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

RUB bonds Eurobonds

5.4 6.2 7.18.7

11.1

16.0

18.2 17.719.1

19.5

CAGR+16%

Figure 36: Volume of the Russian corporate bond market, RUB tn

81% 80% 77% 73% 71% 71%

19%

20%

23%

27%29%

29%

10

20

30

40

50

60

70

2009 2011 2013 2015 2017 2018

Loans (incl. foreign debt) Corporate bonds (incl. eurobonds)

29

686568

35

48

RussiaBrazil

China

SoA

Turkey

Mexico

PolandHungaryPhilippines

Malaysia

Korea

KazakhstanIndonesia

Peru

Chile

Argentina

1.5

3.0

4.5

6.0

7.5

9.0

10.5

SECURITIES MARKET (3)Russian OFZ market provides relatively high yields amid investment grade reliability


Source: Thomson Reuters, Moscow Exchange, IMF and World Federation of Exchanges

Figure 39: Russian OFZ market volume keeps growing Figure 40: Zero-coupon OFZ yield curve, %

Figure 41: Bond market yields, key rate and RUONIA (% RUB) Figure 42: EM 10Y bond yields (% USD) on the background of credit ratings

B B+ BB- BB BB+ BBB- BBB BBB+ A- A A+ AA- AA AA+ AAA

Russia’s sovereign ratingsS&P: BBB- (stable), as of 18 Jan 2019Moody’s: Baa3 (stable), as of 08 Feb 2019Fitch: BBB- (positive), as of 15 Feb 2019

37

5

8

11

14

17

20

23

07

.14

11

.14

03

.15

07

.15

11

.15

03

.16

07

.16

11

.16

03

.17

07

.17

11

.17

03

.18

07

.18

11

.18

03

.19

Cbonds-GBI RU 5Y YTM eff

RUONIA Index

CBR Key Rate

6.7

7.6

33.1

26.7

10

15

20

25

30

35

40

6.4

6.6

6.8

7.0

7.2

7.4

7.6

1.0

1.1

8

1.0

2.1

8

1.0

3.1

8

1.0

4.1

8

1.0

5.1

8

1.0

6.1

8

1.0

7.1

8

1.0

8.1

8

1.0

9.1

8

1.1

0.1

8

1.1

1.1

8

1.1

2.1

8

1.0

1.1

9

1.0

2.1

9

1.0

3.1

9

1.0

4.1

9

OFZ market volume, RUB tn Share of non-residents holdings

6.0

6.5

7.0

7.5

8.0

8.5

9.0

3m 6m 9m 1 2 3 5 7 10 15 20 30

April -18 March-19

SECURITIES MARKET (4)Demand for OFZs placements remains sustainably high


Source: Bank of Russia, Ministry of Finance, National Settlement Depository

Figure 43: OFZ placement dynamics in 2018 and 2019 (RUB bn)

38

0

1

2

3

4

5

6

7

8

9

0

10

20

30

40

50

60

70

80

90

10

.01

.20

18

24

.01

.20

18

07

.02

.20

18

21

.02

.20

18

07

.03

.20

18

21

.03

.20

18

04

.04

.20

18

25

.04

.20

18

23

.05

.20

18

06

.06

.20

18

20

.06

.20

18

04

.07

.20

18

18

.07

.20

18

01

.08

.20

18

15

.08

.20

18

03

.10

.20

18

17

.10

.20

18

31

.10

.20

18

14

.11

.20

18

28

.11

.20

18

12

.12

.20

18

26

.12

.20

18

16

.01

.20

18

30

.01

.20

19

13

.02

.20

19

27

.02

.20

19

13

.03

.20

19

27

.03

.20

19

Foreign bank subsidiaries Non-credit financial institutions

Non-residents Other banks

Systemically-important credit institutions Activity ratio/Meet demand ratio*, rhs

*Starting January 1, 2019 the “activity ratio” calculated as the volume of demand for OFZ to the volume of OFZ supply announced by the Ministry of Finance was replaced by the “meet demand” ratio calculated as the volume of the placement to the volume of demand for OFZ

15 000

20 000

25 000

30 000

35 000

40 000

45 000

0

200

400

600

800

1 000

1 200

1.0

1.1

6

1.0

3.1

6

1.0

5.1

6

1.0

7.1

6

1.0

9.1

6

1.1

1.1

6

1.0

1.1

7

1.0

3.1

7

1.0

5.1

7

1.0

7.1

7

1.0

9.1

7

1.1

1.1

7

1.0

1.1

8

1.0

3.1

8

1.0

5.1

8

1.0

7.1

8

1.0

9.1

8

1.1

1.1

8

1.0

1.1

9

1.0

3.1

9

Market cap, bln RUB, rhs Market cap, bln USD, lhs

SECURITIES MARKET (5)Russian equity market provides growth potential and attractive dividend yields


Source: Bloomberg, Moscow Exchange, International Monetary Fund and World Federation of Exchanges

Figure 44: Russian Equity market cap, bln RUB & bln USD

Figure 46: Russian equities market trading volumes proves stable Figure 47: Dividend yield (12M): Russia vs. EM, %

39

2.52.3

1.664

2.499

1.600

1.750

1.900

2.050

2.200

2.350

2.500

0.0

0.5

1.0

1.5

2.0

2.5

3.0

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

Trading volumes, RUB tn, lhs MOEX Index, rhs

Figure 45: Domestic market capitalization to GDP ratio reflects undervalued Russian financial market (of GDP, %)

48.5%39.5%

0

30

60

90

120

150

180

UK Japan Korea US China Russia Euro area

2016 2017

Russia’s 2018 stock market capitalization to GDP = 39.5%

5.8

2.8

0.5

1.5

2.5

3.5

4.5

5.5

6.5

1.0

1.1

6

1.0

3.1

6

1.0

5.1

6

1.0

7.1

6

1.0

9.1

6

1.1

1.1

6

1.0

1.1

7

1.0

3.1

7

1.0

5.1

7

1.0

7.1

7

1.0

9.1

7

1.1

1.1

7

1.0

1.1

8

1.0

3.1

8

1.0

5.1

8

1.0

7.1

8

1.0

9.1

8

1.1

1.1

8

1.0

1.1

9

1.0

3.1

9

Russia Emerging Markets

SECURITIES MARKET (6)Russian equity market remains undervalued despite strong performance in recent years


Source: Bloomberg

Figure 48: Russian MSCI index vs EM peers (05.01.15 = 100%) Figure 49: Forward P/E ratio (12m), MSCI Russia vs MSCI EM

40

25%

50%

75%

100%

125%

150%

175%

12

.14

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

EM EMEA China IndiaRussia Brazil Turkey

5.8

12.3

-52%

-65%

-60%

-55%

-50%

-45%

-40%

-35%

2.0

4.0

6.0

8.0

10.0

12.0

14.0

12

.14

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

03

.19

MSCI Russia, lhs MSCI EM, lhs Russia to EM P/E discount, rhs

SECURITIES MARKET (7)Moscow Exchange group offers the best infrastructure in its class


Source: Moscow Exchange

National Clearing Centre

CCP, risk and collateral management, clearing,

risk netting

National Settlement Depository

CSD, settlement, depository, safekeeping,

repository

TRADING

CLEARING

SETTLEMENT

MOEX captures the entire value chain for end-customers, offering a one-stop shop for listing,risk management, market data, multi-assettrading, clearing settlement and custody

MOEX is strategically positioned to benefitfrom the development of Russia’s capitalmarkets in the coming years

Fully vertically integrated infrastructure withregulation and oversight by theBank of Russia

Eligible collateral to trade any asset class

Foreign investors have Direct Market Access(DMA), Sponsored Market Access (SMA) andInternational Clearing Membership (ICM)services at their disposal

Moscow Exchange

listing and electronic trading, including DMA

services

41

SECURITIES MARKET (8)Russian financial market has necessary infrastructure and regulation for trading OTC


Variety of instruments and service providers

Russia adheres to G20 decisions in respect of OTC derivatives

reforms

Non-financial counterparties have access to a broad range of hedginginstruments offered by banks (including structured products)

National Settlement Depository provides collateral management services(repo)

Robust legal protection in place

Enforceability of close-out netting in derivatives and repo markets isconfirmed by relevant legal opinions (ISDA, ICMA)

Russian standard documentation developed by SROs and approved by theBank of Russia

Trade reporting to repositories (two authorized repositories available)

National Clearing Centre provides clearing services for OTC trades

42

SECURITIES MARKET (9)Rapidly developing retail market with strong tax incentives and accelerating FinTech


Source: Moscow Exchange

2.7 million retail investors were registered with theMoscow Exchange at the end of December 2018

More than 190 000 retail investors werereported as “active” traders

Corporate bonds with yield of under12.75% became tax-exempt onJanuary 1, 2018

Capital gains on securities held for

more than 3 years are tax-exempt

Recent regulatory changes

Tax deductions for IIA type A – maxRUB 52 000; for IIA type B – at the rateof investment income

Retail investors allowed to openbrokerage and management accountsonline

Figure 50: Number of active retail client accounts

Individual Investment Accounts forprivate investors since 2015.• RUB 1 mln – max sum to invest in a year.

• More than 528k accounts opened as of

December 2018

57 946

78 639 74 911

109 538

190 235

28 068 34 19644 860 46 285

55 476

895 8 03815 159

25 461

60 651

December 2013 December 2014 December 2015 December 2017 December 2018

Equities market Derivatives market FX market

43

CORPORATE GOVERNANCENew corporate governance standards reflect best international practices


Only ratings by approved Russian rating agencies will beconsidered valid for listing requirements for Russianissuers` bonds

Corporate actions reform

Information on corporate actions cascaded toshareholders from issuer through CSD and nominees

E-proxy voting and E-voting platform for shareholdershas been developed

A number of Russian companies have alreadyimplemented an online voting system in 2017

E-voting for bondholders has been implemented andsuccessfully tested

Listing reform on Moscow Exchange

Simplified listing structure: 2 quotation lists and 1 non-quotation list instead of a 6-tier system

Stricter corporate governance criteria for inclusion inthe top-tier list

Stricter requirements for Directors to be consideredindependent

Next stage 2019

Blockchain technology

NSD used a blockchain-based settlement platform tocomplete an inaugural placement ofa RUB 500 mln bond issue in 2017

In 2018 first Russian bonds via smart contracts wereissued for a total sum of RUB 750 mln

CBR corporate governance report: annual monitoring of corporate governance practice and publication of the report on the CBR official site (only in Russian)

44

Corporate governance

JSC Law amended July 2018: Strengthening the role of the Board of Directors in JSC Mandatory risk-management, internal control in public

companies Mandatory audit committees and internal audit

functions in public companies (starting July 2020) Disclosure reform

Securities

New types of securities – structured bonds, perpetualbonds, priority dividends non-voting preferred shares

http://cbr.ru/analytics/?PrtId=overview_practices

COUNTERING MALPRACTICEBank of Russia supervises conduct of financial market participants to promote fair competition


•Bank of Russia improves continuous monitoring of on-exchange trading for the purpose of maintaining financial stability and preventing system shocks caused by misconduct

• Bank of Russia successfully eliminates competitive advantages of unlicensed firms by decreasing their number. Since 2015 detriment caused by financial pyramids decreased by more than 5x times

•In 2015 Bank of Russia became a signatory to the IOSCO MMoU

•Intense cooperation with foreign financial market regulators in terms of information exchange, including confidential information

•Elaboration on international initiatives

• Bank of Russia has implemented an effective system for countering malpractice includingmarket manipulation and insider trading, aimed at ensuring investors’ equality and fair pricing .

Insider trading and market

manipulation

International cooperation

Enhanced consolidated

market analysis

Unlicensed firms and Pyramid Scheme

45

14%24%

39% 32%20% 18%

41%59%

69%

13%

32%

61% 37%

23%

25%21%

6%

27%

6%

51%

12% 23%

42%50% 61%

53%

13% 12%

USA UK Germany Italy Brazil Mexico China India Russia

Bank deposits Cash Insurance and pension assets Securities Other

1135 1150 1131 1132 1136 1131 1117 1 109 1 111 1128

353 356228 332 331 327 325 312 303 268

46 4743

36 37 39 43 43 42 401 4

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

Closed-end Open-end Interval ETF

INVESTMENT FUNDSLocal institutional investor base: the potential of investment funds


* As of the end of 2017Source: World Bank, IMF, Bank of Russia, Moscow Exchange

Figure 52: Assets of investments funds in Russia (RUB tn)

Figure 50: Breakdown of investment funds’ assets by the type (as of December 31, 2018)

46

9%

20%

6%

1%5%25%

18%

16%

Cash

Equities

Bonds

Government bonds

Foreign securities

Real estate

Authorized capital

Other

Figure 51: Majority of savings in Russia is held on bank deposits and in cash*

Figure 53: Number of investments funds in Russia by the type

1534 1497150415001553 1402 1485 1464 1456 1440

2.5

3.7

3.1%

3.5%

3.1%

3.2%

3.3%

3.4%

3.5%

3.6%

3.7%

1.6

2.0

2.4

2.8

3.2

3.6

4.0

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

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03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

Assets, RUB tn, lhs Assets to GDP, %, rhs

NON-STATE PENSION FUNDSLocal institutional investor base: the potential of non-state pension funds


Figure 54: Pension assets in Russia (RUB tn)

Figure 55: Pension system asset allocation (as of September 31, 2018, %)

Bank of Russia became a regulator of the pensionsystem in 2013. Since then a number of changeshas been adopted to strengthen the non-statepension system:

‘one-year non-loss’ rule was extended to ‘five-year non-loss’ rule

stress-testing mechanism introducedcustomers are now encouraged to stay with the

same fund for not less than 5 years since 2014 the Deposit Insurance Agency (DIA)

guarantees the nominal value of mandatorysavings

non-state pension funds are to bear fiduciaryresponsibility (since March 18, 2018)

non-state pension funds are to disclose theirinvestment portfolios

corporatisation of non-governmental pensionfunds (NPFs) completed

work on individual pension accounts reform is inprogress


1.90 1.94 2.06 2.02 1.91 1.78

1.09 1.13 1.71 2.15 2.47 2.64 0.83 0.90 0.99 1.11 1.21 1.25

2013 2014 2015 2016 2017 3Q2018

Non-state pension funds. Reserves

Non-state pension funds. Mandatory savings

State pension fund. Mandatory savings

3.82 3.974.76

5.28 5.595.67

47

21%6% 8%

0%9% 16%

36% 44% 38%

38% 35%14%

4% 5%23%

State pension fund NPFs Mandatory savings NPFs Reserves

Cash Equities Corporate bonds Government bonds Other

INSURANCELocal institutional investor base: the potential of insurance market



Figure 56: Premium volume is gradually growing Figure 57: Assets hit 2.8% of GDP

Figure 58: Premium structure in 2018 shows high level of market diversification

Figure 59: In 2018 market remained highly competitive with the Herfindahl-Hirschman Index equal to 550.6

48

266.4

385.7

112.9

153.51.3

1.4

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

50

100

150

200

250

300

350

400

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

Premiums, RUB bn, lhsPayment of claims, RUB bn, lhsPremiums as % of GDP, rhs

1 609.4

2 918.9

943.3

1 831.12.0

2.8

1.3

1.5

1.8

2.0

2.3

2.5

2.8

3.0

0

450

900

1 350

1 800

2 250

2 700

3 150

03

.15

06

.15

09

.15

12

.15

03

.16

06

.16

09

.16

12

.16

03

.17

06

.17

09

.17

12

.17

03

.18

06

.18

09

.18

12

.18

Assets, RUB bn, lhsReserves, RUB bn, lhsAssets as % of GDP, rhs

31%

6%

10%11%

15%

27%

Life insurance

Corporate propertyinsurancePrivate medicalinsuranceMotor car insurance

Compulsory motor TPLinsuranceOther

62.5

76.7

65.4

80.6

69.7

77.5

0 10 20 30 40 50 60 70 80 90

Top-10

Top-20

Capital, % Premiums, % Assets, %

COMMODITIESUrals futures trading launched to set a price benchmark for Russian export oil


Deliverable SPIMEX Urals Crude Futures contract is a new oil pricingmechanism allowing a direct quotation of exported Russian oil withoutreference to other crude oil grades traded on global energy markets

Transparent pricing process is based on exchange-traded futures contractsreflecting the supply-and-demand equilibrium reached on the back of a largenumber of trades concluded on the exchange by a wide range of marketparticipants and setting an arm’s length price for the relevant commodity

Deliverable SPIMEX Urals Crude Futures contract trading was launched on 29November 2016

Access to the SPIMEX futures contract trades is granted to Russian and foreignlegal entities as well as to Russian individual entrepreneurs. Only legal entities(both Russian residents and non-residents) are able to conduct physicaldeliveries of crude oil

The SPIMEX Urals Crude Futures contract is settled by physical delivery uponexpiration. Such a futures contract has a direct link with the crude oil spotmarket and prevents price manipulation. Physical delivery of crude oil underthe contract is effected against positions opened as of the relevant contractexpiration date

49

MICROFINANCEMicrofinance is a vital part of financial system complementing banks to provide better financial inclusion


Microfinance organizations(MFOs)

Consumer credit cooperatives

Credit Housing communities

Pawnbrokers

Agricultural credit cooperatives

Microfinance institutions (MFIs) provide financial services for

customers with no access to banking products, service regions

with an insufficient bank presence, offer financial products missing

from bank product lines, boost financial awareness and help

clients build their credit histories.

CBR keeps a state register of MFIs and supervises MFIs directly and

via SROs. Currently there are about 15 600 MFI companies.

Roughly 25% of the entire MFO microloan portfolio are microloansto small to medium enterprises (bearing 8% interest rate thanks tostate support via MFOs).

Payday Loans, i.e. small, short-term unsecured loans (up to RUB30k for 30 days) at high rates, are not a development priority andaccount for some 20% of the entire MFO microloan portfolio.

MFIs

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FINTECH (1)Russia provides a favorable environment for FinTech development


Key areas of development

1. Legal regulation of FinTech, including protection of consumer rights and security of personal data

2. Development of digital technologies in the financial market and development of digital infrastructure

3. Transition to electronic interaction between the Bank of Russia, government, market participants and their clients

4. “Regulatory Sandbox” for experimentation with innovative financial technologies, products and services

5. Cooperation within the Eurasian Economic Union and development of single payment area for member states

6. Ensuring technological safety and sustainability in FinTech implementation

7. Development of human resources in the financial market

Facilitate the competition in the financial market

Enhance accessibility, quality and range of financial services

Lower risks and costs in the financial market

Advance the level of competitiveness of Russian technologies

Goals of the Bank of Russia as a high-tech regulator

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FINTECH (2)Russia provides a favorable environment for FinTech development


Implementation of new technological

solutions for the development of the

Russian financial market

Promotion of digitalization of the

Russian economy

Digital identification

Distributed ledger technology

Faster payment system

Open API

Big Data

Main goals Main activities (2017-2018)

Established on 28 December 2016 by the Bank of Russia

with participation of the largest financial institutions

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New system for online sales of financial products

Aimed at replacing traditional sales channels with websites and smartphone apps which will enable customers to compare multiple financial product offers

CBR arranges the regulatory environment necessary for the project

MARKET PLACEShaping future of financial services experience in Russia


CustomersEqual access to financial market

Competition

Development of competitive environment

and financial services optimization

TechnologiesOpen API and fast payments system

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PAYMENT INFRASTRUCTURE (1)Bank of Russia Payment System


Money transfer services are provided to:

all credit institutions (financial market infrastructure included)

Russia’s Federal Treasury and its agencies

other Bank of Russia clients

Average daily figures: 6.4 mln payments, RUB 6.9 tn

84% of funds are transferred via the real-time service

New liquidity management tools, future value date settlement functionality, cash-pooling services for Federal Treasury and multibranch banks introduced

Transfer timeframe is adapted to Russia’s 11 time zones - system operates from 1 a.m.to 9 p.m., Moscow time.

The Faster Payments System (FPS), launched on 28 January 2019, is set to enableinstant C2C interbank transfers 24/7/365 using mobile phone number. At the next stage– C2B (customer–to-business) and C2G (customer-to-government) payments to beincluded

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PAYMENT INFRASTRUCTURE (2)Advancing supervision and oversight to ensure stable development of the payment infrastructure


Supervision of the paymentinfrastructure: monitoring organisations’compliance with the Russian law. Appliesboth to banking and non-bankinginstitutions providing paymentinfrastructure and payment services

Oversight of the payment infrastructure:improving institutions’ operationsfollowing the Bank of Russiarecommendations based uponinternational best practices

Bank of Russia international cooperationin supervision and oversight of thepayment infrastructure

36 payment systems and more than 400 institutions supervised within the National Payment System (NPS)

Objects supervised for compliance with CPMI/IOSCO Principles for Financial Market Infrastructure (PFMI): 2

systemically important payment systems, 4 socially important payment systems

NPS supervision is risk-oriented. Proportionate remote supervision approach is being introduced to the NPS

Figures for early 2019 :

High PFMI compliance ratings. NPS operators implement approved action plans based on the Bank of

Russia recommendations

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Russian national payment system “Mir” was created on 23 July 2014 Operator of Mir Card Payment System is National Card Payment System Joint-Stock

Company, 100% of its shares belong to the Bank of Russia More than 53 mln “Mir” payment cards were issued by year end 2018 in Russia Co-badging projects with international payment systems: Maestro, JCB, AmEx and

UnionPay Support of mobile payment service Samsung Pay Mobile payments service MirPay is launched PayPass system has been successfully implemented

Payment system “Mir” launched a loyalty program which allows card holders to receivecashback

“Mir” payment cards are accepted in the Republic of Armenia, Kyrgyz Republic, as wellas in the infrastructure of VTB Bank in the Republic of Kazakhstan and the Republic ofBelarus

NATIONAL PAYMENT CARDS SYSTEMSetting the standards for the payment industry to provide convenient and stable services

FINANCIAL SECTOR OVERVIEW 56

CONSUMER PROTECTIONFinancial consumer and investor protection as one of priorities for 2016-2018


KEY FINANCIAL CONSUMER PROTECTION WORKSTREAMS

Consumer and investor complaints handling

Conduct supervisionmodel

Setting requirements for financial organizations in order

to improve consumer and investor protection

Dispute resolution (ombudsman)

Financial awareness improvement

Disclosure requirements for consumers and

investors

Disclosure requirements for information on risks

Differentiation of consumer protection

requirements

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FINANCIAL INCLUSIONStrong international background helps to promote financial inclusion


ALLIANCE FOR

FINANCIAL INCLUSION (AFI)

‒ The global knowledge exchange network empoweringpolicymakers to increase access to quality financialservices for the less well-off communities andhouseholds

‒ The Bank of Russia became a member of AFI inFebruary 2014

‒ In September 2014 the Bank of Russia joined the MayaDeclaration setting up the priorities for AFI memberson financial inclusion

‒ In September 2015 the Bank of Russia joined theMaputo Accord to improve funding accessibility forSMEs

‒ The Bank of Russia and AFI co-hosted the ‘Financialinclusion and shadow banking: innovation andproportional regulation for balanced growth’conference in November 2015

‒ In June 2016 the Bank of Russia hosted the AFI GSPWGmeeting.

‒ CBR hosted the 2018 AFI Global Policy Forum

‒ Improving financial inclusion for people and SMEs is one of financial marketdevelopment priorities for 2016-2018

‒ The Bank of Russia annually publishes financial inclusion indicators and theReport on Financial Inclusion in Russia (with supply-side and demand-sidedata starting from 2015)

‒ The technical note on financial inclusion was prepared in the context of ajoint WB / IMF FSAP mission in Russia during February-March 2016; thenote was published in May 2016

‒ Early in 2018 the Bank of Russia launched the Financial Inclusion Strategy inRussia for the period of 2018-2020

Financial Inclusion Promotion by the Bank of Russia

G20 GLOBAL PARTNERSHIP FOR FINANCIAL

INCLUSION (GPFI)‒ Acts as an inclusive platform for G20 countries, non-members and other parties for

knowledge and experience sharing, policy advocacy and coordination in promotingfinancial inclusion

‒ Russia is an original GPFI member since November 2010

‒ Endorsed the ‘original’ FIAP in 2010 and the ‘updated’ FIAP in 2014 and 2017

‒ G20 – World Bank – OECD conference on empowering consumers of financialproducts and services was hosted in Moscow in June 2013

‒ The third annual GPFI Forum was held in St. Petersburg in 2013

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AML/CFTBank of Russia maintains AML/CFT supervision of credit and non-credit financial institutions


Source: Financial Action Task Force

2008The FATF placed Russian Federation in the regular follow-up process

2013The FATF recognized that Russia

could be removed from the regular follow-up process

Key measures taken in 2008-2013:

Enhancing corporate transparency by introducing beneficial ownership requirements to the AML/CFT Law

Prohibiting credit institutions from opening and maintaining anonymous accounts or accounts in fictitious names

Addressing certain shortcomings in the criminalization of terrorist financing

Amending legislation to prevent criminals from becoming major shareholders in financial institutions

Strengthening instruments to freeze terrorist assets domestically or on request of other countries

Abolishing the threshold which decriminalized self-laundering of amounts lower than RUB 6 mln and which wasnot in compliance with the FATF Recommendations

Russian AML/CFT law is based on International Standards on Combating Money Laundering (FATF Recommendations)

2018 – 20194th round of mutual evaluation, joint

FATF/MONEYVAL/EAG evaluation of Russia

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Key avenues of cooperation in the sphere of information security

Establishing institutional and technicalframework for dynamic cooperation betweenthe common financial market regulators andparticipants, building upon the Financial SectorComputer Emergency Response Team(FinCERT) of the Bank of Russia

Enabling trusted electronic operations in theincreasingly digitalised common financialmarket

Formulating unified standardised approachesto information security, cyber resilience andsupervising related risks

Policy coordination and unifying themechanisms of strong customer authenticationfor financial transactions and money transfers

CYBERSECURITYKey initiatives in information security and cybersecurity


Countering international and cross-border crime

Compiling a general register of most typical cyber threats and computer

attack methods

Addressing the rise in money withdrawals via illegal cross-border

transactions

Combatting fraud in financial e-services provided via websites registered in foreign DNS zones

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INVESTOR CONTACTS AND REGULAR MEETINGS SCHEDULE FOR 2019

International Cooperation DepartmentTel.: +7 (495) 771-90-68

Email: [email protected]: cbr.ru/eng/today/irp/

July 19-26 Quiet period

July 26 Board of Directors meeting on monetary policy

August 30 –

September 6

Quiet period

September 6 Board of Directors meeting on monetary policy

Release of the Monetary Policy Report

September 11 Conference call with institutional investors

October 11-13* Ad-hoc meetings with investors on the sidelines of

the IMF/WB meetings

October 18-25 Quiet period

October 25 Board of Directors meeting on monetary policy

December 6-13 Quiet period

December 13 Board of Directors meeting on monetary policy


December 18 Conference call with institutional investors

February 1-8 Quiet period

February 8 Board of Directors meeting on monetary policy

March 15-22 Quiet period

March 22Board of Directors meeting on monetary policy


March 26 Conference call with institutional investors

April 10-12*Ad-hoc meetings with investors on the sidelines of the

IMF/WB meetings

April 19-26 Quiet period

April 26 Board of Directors meeting on monetary policy

June 6-8 Saint Petersburg International Economic Forum

June 7-14 Quiet period

June 14Board of Directors meeting on monetary policy


June 19 Conference call with institutional investors

*tbc

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mailto:[email protected]

http://cbr.ru/eng/today/irp/

Documents

RUSSIAN FINANCIAL SECTOR Investor presentation