XXI Апрельская международная научная конференция по проблемам развития экономики и общества
The global economy passes the COVID-19 related crises. For various projections, the output fall in Russia in 2020 will vary from 2 to 8 percent. So, in comparison with the crises of 1998 and 2008, the current shock can be more severe. In the upcoming years the Russian economy will pass the recovery stage, approaching the new balanced growth path. What proximate sources would push this growth?
With the neoclassical industry growth accounting and the Russia KLEMS dataset the present report aims to shed light on this, considering the growth patterns and sources of growth after the crises of 1998 and 2008. The report unveils the most important sources of the after-2008 stagnation in Russia, which are the decreasing efficiency of the extended oil and gas sector and the suspension of technology convergence. Since the recovery in Russia will be, most probably, caused by the increasing demand on energy and raw materials, driven by the recovery of global markets, policy implications for Russia should include efforts to improve efficiency in such export-oriented sectors, as oil and gas, and efforts, which aim to boost technology convergence such as backing export-oriented firms, which have been integrated to global value chains.
The report is based on situation analyses results. Situation analyses was conducted under the auspices of the Ministry of Foreign Affairs of the Russian Federation, with the support of the Committee on International Affairs of the State Duma of the Federal Assembly of the Russian Federation and the International Public Fund “Russian Peace Foundation,” as well as the Council on Foreign and Defense Policy (CFDP) and Russia in Global Affairs journal.
Private banking industry is one of the fastest-growing areas of banking and is associated with the increasing number of wealthy individuals and the expansion of VIP-banking services. Presently, global wealth totals to US$70,2 trillion, whereas private banking industry manages only US$21,1 trillion of wealth assets, which creates significant potential of this area for further development and growth.
The Russian VIP-banking (private) segment witnesses a steady upward trend, and experts predict its increase by 17% in 2023. This segment is also characterized by a high concentration of large private capital: there are 172 thousand individuals who are dollar millionaires. An augmenting demand of potentially wealthy customers, on the one hand, and the need to stem capital outflow, on the other, turn VIP-banking services into a perspective direction for further development in the Russian financial market.
In this paper, we identified key features of the VIP-banking sector and assessed the effect of bank competition among Russian financial institutions providing VIP-banking services on banking system resilience to external shocks based on the previous findings in this area. We proposed two hypotheses to find out whether stability of the Russian banks extending the VIP-banking services is affected by the increased competition in the VIP-banking services segment, and whether stress resilience of the Russian banks extending the VIP-banking services depends on the share of non-interest income in their total income base. We test the hypotheses using three main regression models estimations: linear regression, fixed effects regression, and random effects regression. For testing the hypotheses we modified the Lerner index as a main measure of competition in the Russian banking sector where it was previously applied by Anzoátegui et al. (2012), and used the approach of Amidu and Wolfe (2013) when measuring both non-interest income and non-interest expenses. We also employ Z-score as an indicator of financial stability for measuring bank’s insolvency risk based on Chiaramonte et al. (2015). Our model specification suggests grouping of the selected micro-level variables to assess the extent of income diversification, control variables involving assets and liabilities, and macroeconomic indicators.
We found that a decrease of the level of bank competition negatively affects stress resilience of the Russian banks extending VIP-banking services that supports the “competition-stability” concept. We also found that bank competition enhances stability as diversification of banking income strengthens stress resilience of Russian banks extending VIP-banking services. Besides, an increase in equity of Russian banks with a higher level of income diversification positively affects financial stability, while the growth of loans in bank assets yields the opposite effect.
The research results are essential for managerial decision making in banks aiming at improvement of their operating models amid systemic risks, in particular, for the optimal distribution of interest and non-interest income sources, which contributes to financial stability. Moreover, our study may have an appeal to banking regulators, as searching for a balanced relationship between daily banking services and bank competition and financial stability matches the objective of searching for a balance between the rigor of banking regulation and bank efficiency during the post-crisis recovery.