The Russian Government has approved a draft Program of the Banking Sector Short-Term Development as developed by the Bank of Russia.
The Draft sets out bank reform tasks, such as improving the financial position of lending organizations, eliminating nonviable lending organizations, increasing the capital of lending organizations, expanding deposit-taking activities as well as strengthening relationships between banks and the real economic sector.
These tasks will be solved across the following important areas:
In the area of legislation:
- bring major legal framework for lending organizations closer to internationally accepted norms, such as the Core Principles for Effective Banking Supervision developed by the Basel Committee on Banking Supervision;
- put in place conditions to move to International Financial Reporting Standards (IFRS).
In the area of bank regulation, supervision and market discipline compliance:
- develop banking regulatory framework and supervisory practices through the implementation of internationally accepted practices;
- put in place a system of evaluating lending institutions’ performance on an IFRS basis;
- enhance efficiency and quality of audits through the implementation of International Standards on Auditing and IFRS;
- improve the transparency of lending organizations.
In the area of taxation:
- continue efforts to improve banking taxation and have regard to the need to introduce IFRS.
In the area of reinforcing the role of banks as financial intermediates and their role in financial markets:
- develop liquidity management vehicles;
- take measures to disclose information based on accounts prepared in accordance with IFRS by all market participants.
Measures should be taken to improve the lending organizations’ transparency in order to build a competitive banking environment and achieve more efficient impact of the market discipline. All economic agents’ move to IFRS is an important transparency-improving instrument.
In order to attract foreign investments in Russia’s economy and banking sector in particular as well as raise foreign investor confidence in the banking sector, it is necessary to improve the legislative support of investor rights, improve the quality of corporate governance at enterprises and in organizations in all sectors of the economy, lower non-commercial investment risks and ensure free repatriation of profit, accelerate the move of enterprises and organizations to IFRS
In order to improve the risk management function, banks should use recommendations of the Basel Committee on Banking Supervision as well as internationally accepted risk management practices, including statistical estimates of the likelihood of adverse events, if appropriate.
The Draft focuses on the sustainability of a deposit guarantee scheme being created. The deposit guarantee scheme should cover only viable banks whose performance is evaluated using internationally accepted practices, including IFRS-based financial statements. Prior to the adoption of IFRS in Russia, banks may choose at their option whether they should participate in the deposit guarantee scheme, with banks outside the deposit guarantee scheme still being entitled to take deposits for some time. The deposit guarantee scheme is to become compulsory after the move to IFRS. Only banks participating in the scheme will be entitled to take deposits of individuals.
The underlying principle of improving the banking regulatory framework, banking supervision and outside audits is the full implementation of internationally recognized approaches to their methodology and functioning. This will require changes to current legislation as well as better practices of its application.
Tasks aimed at strengthening law enforcement in the banking sector and banking supervision issues relate to other issues such as foreign exchange control, bank compliance with tax and anti-trust legislation, struggle against money laundering activities. Improving legislative and law-enforcement practices across these areas should also be performed using international experience.
An important task in the area of banking supervision is putting in place a system of evaluating lending institutions’ performance based on internationally accepted approaches.
The Government and the Bank of Russia are to define the organisational and legal measures which are necessary to provide the transition of lending organisations to an IFRS reporting system and develop their [measures] implementation schedule by the end of 2001 so that a transition for Russian banks along with other economic sectors to an IFRS reporting basis occurs as from 1 January 2004.
The move to IFRS requires changing the legal framework, the way financial and management accounting systems are organized [at enterprises], developing, testing and implementing new software as well as retraining accountants, managers, auditors and banking supervision experts. This task is to be solved by adopting a new version of the Federal Accounting Law and making certain changes to tax legislation, which should facilitate the implementation of accounting principles based on IFRS.
The Bank of Russia will take measures to optimize a set of reports filed by lending organizations to the Bank of Russia. These measures will eliminate the duplication and excessive details of information filed to the Bank of Russia and optimize reporting deadlines. As part of the Interagency Coordinating Committee for Banking Promotion in Russia, the Bank of Russia has started developing regulatory framework in order to implement IFRS in selected «pilot» banks
External audits are intended to be increasingly important in developing lending organizations’ transparency, strengthening market discipline and improving corporate governance and internal control. The major task for the next few years is to implement auditing standards in accordance with international practices and IFRS. As part of solving this task, the Russian Government will:
- bring auditing standards in compliance with international practices;
- enhance the role of self-regulatory professional organizations in auditors’ admission to the market and audit quality control.
The co-operation with Russian and foreign experts, banking supervisory agencies and international organizations contributes to developing approaches to and implementing measures aimed at the Russian bank reform. The Interagency Coordinating Committee for Banking Promotion in Russia (ICC) that, in addition to representatives from Russian government agencies, includes those from international and foreign organizations (IMF, World Bank, EBRD, foreign experts) has been operating since March 1999 and taking a lead in these processes.
A full version of the Draft Joint Strategy of the Banking Sector Development can be downloaded from the Russian Government’s website at http://www.government.ru.