% 1 2 3 4 5 Groups categorized by size of assets as of 1.04.1 - banks ranked between 1 and 2 - banks ranked between 11 and 3 - banks ranked between 51 and 4 - banks ranked between 101 and 5 - banks ranked between 201 and 6 - banks ranked between 501 and The calculations were made on the basis of the data provided by STIik Company Figure 4. ROE in Groups Categorized by Size of Assets in Annual Figures in Quarter 1 end of 2005 ( Sberbank RF is not included ) Analysis of the earnings and expenditures profile of the banks shows that the group of the largest banks has the lowest net financial performance in terms of percentage of assets: 6.3% against 11.1% of the group of the smallest banks ( see Table 1 ). This is partially resulted from a lower level of interest income, as well as the factor that the group of the largest banks falls far behind by the amount of commission earnings ( 1% against 3% in Group 6 ). However, the group of the largest banks shows the lowest administration costs in terms of percentage of the assets ( it should be noted, however, that the average amount of such costs remains fairly high in Russia thus restricting competitiveness of domestic banks ). Personnel wages, rent charges and other administration costs consume more than 7% of the average assets in the group of small banks thus bringing to naught their higher interest and non-interest income.
Net Financial Income Structure In terms of percentage of assets Groups categorized by size of assets 1 2 3 4 5 Net financial income 6.3 8.3 8.5 9.4 9.2 11. net interest income 4.4 4.4 4.8 6 5.6 6.Interest income 7.2 7.7 7.9 10.1 9 9.Interest income 2.9 3.3 3.1 4.1 3.4 2.Net non- interest income 1.9 3.9 3.7 3.4 3.6 4.commission earnings 1 2 1.6 2.5 1.9 from transactions in financial markets -0.1 0.8 0.5 0.2 1.2 1. from foreign exchange transactions 0.2 0.2 0.6 0.2 0.6 0. from transactions with precious metals 0 0 0 0 0 from futures foreign exchange and derivatives transactions -0.2 -0.2 -0.1 0 0 from securities transactions -0.1 0.7 0 -0.1 0.6 0.from revaluation of assets in foreign exchange and securities 0.4 0.6 1 0.4 0.1 from revaluation of foreign exchange assets 0.1 0.1 0.1 0 0 from revaluation of securities 0.3 0.5 0.9 0.4 0.1 from leasing transactions 0 0 0.1 0 0 other operating income 0.6 0.4 0.5 0.3 0.4 0. administration costs, including : 3.1 4.3 4.3 5.4 5.6 7.Personnel wages, including social insurance contributions 1.5 2.1 2.3 2.8 2.8 3.amortization 0.1 0.2 0.2 0.2 0.3 0.rent charges 0.2 0.4 0.3 0.5 0.5 taxes charged to expenses 0.1 0.3 0.2 0.3 0.3 0.net operating income 3.2 4 4.2 4 3.6 3.changes in reserves 0 2 0.6 0.8 1.2 Net performance from irregular transactions -0.0 0.1 0 0.1 0.1 0.Income before tax 3.1 2.1 3.6 3.3 2.5 2.For reference: number of the banks in the group 10 40 48 98 296 whose performance indicators were used for calculation.
The calculations were made on the basis of the data provided by STIik Company Sychiova L. I., Mikhailov L.V.
Real Economy Sector: Trends and Factors According to the preliminary outcomes, the GDP value grew by 5.6% in the first half of against 7.7% in the corresponding period of the previous year. Structural peculiarities of the internal demand were governed by a moderate economic growth rates: capital investments yielded their leadership to final consumption of households. Capital investments grew by 9.7% in the period between January and July 2005 against 12.1% in the corresponding period of the previous year. A share of capital investments accounted for 14.1% of GDP in the first half of 2005 under intensive growth in the gross national savings.
The first half of 2005 was characterized by a weakening growth intensity almost for all types of economic activity. According to the preliminary outcomes, the GDP grew by 5.6% in the first half of 2005 against 7.6% in the corresponding period of the previous year. The structure of the produced GDP was dominated by retarding growth rates in industrial production and construction works, which was not compensated by continuously stable movements in retail turnover and services. Industrial production grew by 4.1 % in the period between January and July 2005 as compared to 2004, which is by 3.3 percentage points below the corresponding parameter in the previous year, while construction works grew up by 7.2% against 13% of the previous year. Moderate movements of the industrial production growth was one of the factors that slowed down growth rates in transport freight turnover to 3.0% against 7.2% in the period between January and July 2004.
Favorable external economic conditions continued to have a positive effect on the overall economic situation. However, economic growth rates became dependant to a larger degree on both the level of demand and price fluctuations in the world market and production capacity of mining industries under a high concentration of domestic exports within a small group of raw materials.
In the period between January and July 2005, the consolidated financial performance of the economy increased by 1.5 times, including an increase by 2.2 times in mining operations, as compared to the corresponding period of the previous year. Profitability of the products sold during the first half of 2005 accounted for 27.6% for fuel and energy minerals and 34.9% for metallic minerals and other types of mineral products with the 9.7% average level of profitability for the economy as a whole.
However, the growth of revenues from export operations had no significant effect on economic growth rates.
The production index in mining operations slowed down to 101.3% in the period between January and July 2005, including production of oil ( down to 101.8% ) and metallic minerals ( down to 97.3% ). Consequently, this resulted in retardation of export growth rates down to 105.9% in physical terms against 111.7% in the first half of 2004. An increased tax burden gives less incentives to oil companies in accelerating production and export of oil. In spite of an extremely favorable price conditions of hydrocarbons, oil production was dominated by retarding oil export growth rates (down to 100.5%) in the first half of the year.
The export growth retardation was one of the key factors that caused changes in the GDP utilization structure. The external demand has been yielding its positions, a opposed to 2004, in formation of GDP utilization proportions. The internal demand grew by 7.2% and 9.4% correspondingly at the end of Quarter 1 and 2 of 2005. It should be noted that the growth in the internal demand was supported by a positive movement of both export and import performances. A gradual acceleration of the internal production growth rates, from 4.6% in Quarter 1 up to 6.3% in Quarter 2 of 2005 has been reported this year as compared to 3.9% in the second half of 2004. This resulted in that a share of the internal production in the structure of sources covering the internal demand increased from 32% in the second half of 2004 up to 48% in Quarter 1 of 2005 and 49.5% in Quarter 2 of 2005, while a share import decreased from 68% down to 52% and 50.5% correspondingly.
Development of the Russian economy over the last three years has been characterized by a moderate level of domestic consumer goods production. The rate of food products production accounted for 104.4% with a decline of non-food products by nearly 2.5% in the period between January and July of 2005.
Continuous competitiveness of Russian foods products is determined by inertial processes of postcrisis adaptation of production to the traditional structure of consumer preferences and activation of the investment policy on modernization and reconstruction of production in 2000 - 2003. Food production is leading in the industrial production in terms of replacement of fixed assets. The fixed asset replacement coefficient has been accounting for 2.9% in food production over the last five years with the average production figure being 1.5% in the economy as a whole. Growth of imports was kept down by expanding competitive food production facilities on the basis of modern technological methods. The negative tendency in the non-food products market is aggravated by the fact that poor activity of the domestic business has been provoking aggressive import of soft goods, household appliances and furniture at the backgrounds of advancing growth in real personal incomes and wages against retail turnover.
The situation in the investment market develops at the backgrounds of an advancing growth in import of machinery, equipment and transport vehicles against the internal production movement. In spite of the advancing growth in production of machinery and equipment over capital investments, the capital good market was balanced by advancing growth of machinery and equipment import (135.7%).
Imbalance in the demand and the supply, poor competitiveness of the engineering production in quality, application properties and price increase the upward tendency for a share of imported machinery and equipment in the investment structure. Import remains one of the principal sources of fixed assets renewal, reconstruction and modernization of production under the established structure of domestic production of investment goods. Investments in purchase of imported equipment accounted for 24.9% of the total volume of investments in machinery, equipment and transport vehicles in Quarter 1 of 2005 against 23.5% in the corresponding period of the previous year.
Structural peculiarities of the internal demand were governed by a moderate economic growth rates:
capital investments yielded their leadership to final consumption of households. Capital investments grew by 9.7% in the period between January and July 2005 against 12.1% in the corresponding period of the previous year. A share of capital investments accounted for 14.1% of GDP in the first half of 2005 under intensive growth in the gross national savings.
Gradual improvement of social parameters in economic development were responsible for steady expansion of households final consumption this year. Real personal incomes growth accounted for 8.3%, real wages for 8.0 % and real amount of monthly pension entitlements for 7.2% in the period between January and July 2005 as compared to the corresponding period in the previous year.
An increase in effective demand of the population was responsible for intensive growth in retail turnover. This growth was mostly caused, like in the previous year, by advancing growth in the nonfood products market. Food product sales grew by 9.7%, while non-food products sales by 12.9% with retail turnover growth by 11.4% as compared to the period between January and July 2004. This is conditioned to a certain extend by structural changes in prices in all basic groups of goods Prices of food products increased by 8.9%, while prices of non-food products by 2.8% in the beginning of the year under an increase in consumer prices by 8.5%. The growth in retail turnover is supported by dynamic development of the consumer crediting sector. Volume of credits extended to physical bodies accounted for 746,2 bln rubles in the beginning of June 2005 and increased by 20.6% since the beginning of the year. A share of consumer spending accounted for 72.3% in the structure of cash income spending and slightly increased in the first half of 2005 as compared to the previous year.
Increased inflation expectations of the general public, which traditionally reflected an increase in purchases of foreign hard currency and non-food products, began to effect expenditures of the general public. This, however, had no effect on peoples’ propensity to save. A share of saving accounted for 11.7% in the structure of people expenditures in the first half of 2005. High investment activity of the general public in the housing construction sector remain a factor that keeps the general public from using their savings for current consumption.
Structural changes in the industry were governed by a faster growth of manufacturing industries. Products of manufacturing industries grew by 5.8% in volume in the period between January and July 2005 against 8.5% in the corresponding period of the previous year. The growth rates in manufacturing industries of Quarter 2 of 2005 ceased to accelerate in July.
The development of manufacturing industries has been becoming one of the key factors for dynamic economic growth. In this case, analysis of the problems and factors regarding operation of specific enterprises is of special interest. Faster growth in production of electric systems, electronic and optical equipment ( 120.5% ), machinery and equipment ( 111.9% ) was typical of manufacturing industries. Dynamic growth in production of machinery and equipment designed for primary metals establishments, oil production and railroad transport had a positive impact on the investment products market as before. At the same time, overproduction in automobile industry increased its adverse affect.
Production of motor cars decreased by 7.6% in the period between January and July 2005 as compared to the corresponding period of the previous year. Competitiveness of Russian automobile industry continues declining against strengthening of the RUR exchange rate and retardation in growth of labor productivity.
IET’s macroeconomic estimates for the end of 2005 show that ongoing high movements of external and investment demand remain principal growth factors under the current trends and scenary changes of economic environment. The GDP is expected to grow by 5.1 to 5.5% in 2004 as compared to the previous year, provided that the expected growth of capital investments vary in the range of 109.5 to 110.0%, exports in the range of 122.8 - 126.6%% and a share of the unemployed in total number of the work force is at the level of 7.6%.
О. Izriadnova Industrial Environment in August 2005.
The initial data on the Russian industrial situation in August 2005 provide no sufficient ground for overcoming the pessimistic expectations which have been dominating over the last few months. Most of the industrial indicators tend to be negative rather than positive, according to conducted polls.
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