Russia's Changing Financial System: The Monetary Situation in Early Summer 1995

The document outlines the monetary situation in Russia in 1994 and 1995 and then concentrates on the financial flows of credits, subsidies and taxes between the central bank, commercial banks, small agency banks and the state. It sees that largest changes to the central bank have been:

• Abolition of the rouble zone delegated control to the central bank and stabilized the volume of credits outstanding;
• Direct refinancing of 'priority sectors' - agriculture, oil and energy - by the government led to a reconfiguration of assets in the balance sheet and a rise in the government component to 70%. Financial processes have become more transparent;
• Release from the role of a low-interest rate provider of finance to the government (and underlined in the Central Bank Law, Article 22).

Commercial banks have taken advantage of falling interbank rates to increase their spreads relative to the lending rate, in part due to delinquency -- between January and November 1994, delinquency increased by 466% from 3 to 20 billion roubles. The document outlines trends and central bank regulation thus:

• Financial intermediation in Russia is on the decline in quantitative terms due to inflation and the growth of outstanding credit;
• Central bank has issued regulations to improve quality in banking and minimum capital standards slowing the growth in numbers of new banks to 42 in January-April 1995;
• Volume of equity capital held by Russian banks has grown not only in real terms but in relation to both total assets and loans;
• Central bank has issued a directive that requires banks to set aside provisions to cover defaults according to five risk categories and between 2 percent and 100 percent of the loan value;
• Minimum reserve requirements have been in operation since May 1995;
• Money supply remains tight then the performance of the Central Bank of Russia in stabilizing major banks can be judged.