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Average Account Value (in current terms, RR bil- 10.04 10.31 2.59 3.lion) Share of Resident Corporate Deposits in Banks 9.2 9.0 5.7 4.Liabilities Number of Banks 127 147 100 Note: Surgutneftegasbank figures are excluded from the regional group Source: STI&K consultancy Similar changes occurred in the segments for 3-6 months and over 12 months corporate deposits. While the number of 3-6 months deposits has been stable during the year for Moscow banks, the regional banks have managed to increase their share from 2.4% to 16%. Likewise, corporate foreign-currency deposits of over 1 year have risen 1.5 times at Moscow banks and by almost 2.5 times at regional banks.

In contrast, 6-12 months deposits have significantly fallen in number both at Moscow and regional banks. If at the start of the year both groups had more or less similar positions on the market, by the end of September, the number of these deposits fell by 19.2 points for an average Moscow bank and by 24.1 points for its regional counterpart.

Banks Operational Efficiency Compared with the previous year, the returns on assets ratio (ROA) for three quarters of 2002 seemed to demonstrate that Russian banks were more efficient last year than they were in 2001. Thus returns on assets ratio for all existing banks (excluding Sberbank and ARCO managed banks) for three quarters in 2002 amounted to 3.3%, whereas in 2002 the figures stood at only 2.9%. 2002 gross operational income (the sum of net interest and net noninterest revenues ) figures were also high relatively to assets (9.5% vs. 10.4%, see Table 12).

The growth was achieved through increases in net interest income as banks managed to raise margin rate from 4.9% to 5.2%, while net non-interest income stayed at 2001 levels. An accelerated reduction in interest costs rather than an accelerated reduction in interest revenue has contributed to the rise in the net interest income. If interest revenues fell in 2002 by 0.percentage point (from 10.3 to 9.4%), then rate-based costs in the same period dropped by 1.percentage points (from 5.4 to 4.2%).

INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru Rates on most popular type of corporate loans (6 12 months) continued to fall throughout 2001 and 2002, although their reduction did not proceed in a consistent manner.

% 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 Source: Russian Central Bank Fig. 10. Profits on Corporate Ruble Loans with 6-12 Months Maturity Including Refinancing in 2001-2002 (in %) In 2002 banks also appeared to be more efficient in their operations with securities.

For 3 quarters of 2002, banks net revenue raised from transactions with securities has grown from 0.8 to 1.1% - a pleasant reversal of fortunes from a dismal performance in during which banks net securities revenue fell almost twice (from 1.9 to 0.8) on the previous year. The share of non-interest revenues did less well and their share in gross operational income for 9 months of the year has fallen a bit from 46.8% in 2001 to 45.3% by the end of 3rd quarter of 2002.

Table Banks Costs and Revenues Statistic (in % to assets) 2000 2001 3rd Q Gross Operational Income 10.4 9.2 9.Net interest Income 3.3 4.9 5.interest Revenues 11.9 10.3 9.interest Costs 8.6 5.4 4.Net interest Income 7.1 4.3 4.Revenues from commission and fees, incl: 2.8 2.0 1.On financial market operations 2.7 1.5 1.Foreign-currency transactions 0.6 0.6 0.Gold and precious metals 0.1 0.1 0.current operations on Foreign-currency and 0 0.1 deposits operations with securities 1.9 0.8 1.revaluation of forex reserves and securities 1.0 0.6 0.revaluation of forex reserves 0.2 0.3 0.revaluation of securities 0.8 0.3 0.Leasing -0.1 -0.1 -0. RUSSIAN ECONOMY in trends and outlooks Other operational revenues 0.9 0,3 0,Administrative Costs 5.7 4.9 4.Incl. Wages and Social Security Payments 1.9 2.3 2.Depreciation deductions 0.3 0.2 0.Property Lease 0.5 0.4 0.Taxes, allowable for costs deduction 1.1 0.5 0.Net Operational Income 4.7 4.3 4.(-) Changes in reserves 2.6 1.6 1.Net result from occasional operations 0.3 0.2 0.Pre-Tax Profit 2.4 2.9 3.Pre-Tax Profit to Balance Capital 10.7 13.9 16.Note: Data for all current banks as of 3rd quarter 2002, excluding Sberbank and ARCOARCO-managed banks Source: STI&K Consultancy Thus, although banks 2002 profitability beats the previous year results, they still failed to match margins achieved in 2000. Administrative costs in 2002 continued to decline as a proportion of banks assets, albeit at a slower pace than in 2001. If in 2001, banks managed to reduce administrative costs from 5.7 to 4.9% of assets, then in 9 months of 2002 the reduction barely made a symbolic 0.1 percentage points cut. Major reason for this belt-tightening was not so much focus on frugality on banks part, but a change in rules governing assignment of certain tax payments to costs. For instance, in 2000, the value of tax payments that banks were allowed to book to costs amounted to 1.1% of the total costs, while in 2002 the figure stood only at 0.5%. Other types of administrative costs, except wages (which rose almost by a quarter), were cut as well. If in 2000, banks paid only 1.9% of their assets as wages, while in 2001 and 2002 that figure was raised to 2.3% of assets.

For the first time in several years, banks managed to raise (albeit only by 0.1 p. points) their net operational income. At the same time, more resources were designated towards reserves creation. For 9 months of 2002, reserves rose by 1.8% of assets, while in 2001 that figure amounted to 1.6%. Net results on non-regular operations in the same period almost doubled their share in relation to assets. Consequently, returns on assets ratio for 9 months of 2002 climbed up above the entire 2001 level by 16%. Pre-tax profits to balance capital ratio also rose and registered growth of 16.8%, but as was the case with administrative costs reductions, the changes for the better happened slower in 2002 than in 2001.

Interestingly, in 2002 the banks performance proved to be just slightly dependent on the size of their assets (see Fig.12). In contrast, during 1998 crisis the size mattered, and it was the big banks that suffered heaviest losses, while smaller banks outside the top 50 managed to fairly quickly absorb the shock and adapt to a new environment. By 2002, convention of bigger means better seemed to prevail and the countrys largest banks finally have visibly improved their profits to assets ratio of.

INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru % 1 2 3 4 5 Banks Ranking Based on Assets Size as of January 1, 2002:

1. first 10 top banks 2. ranking 11-3. ranking 51-4. ranking 101-5. ranking 201-6. ranking 501- Note: out of currently existing 1304 banks data for only 1281 were included, because by the end of 2000 some banks have not yet commenced their operations. In addition, Imperial Bank was excluded from the 3rd group, because its data skewed the groups average by a factor of 2 (in 4th quarter the bank was engaged in heavy reserve creation) Source: STI&K Consultancy Fig. 11. 2001 Returns on Assets Ratio of Banks Based on their Asset Size (except for Sberbank and ARCO-managed banks) 4% 1 2 3 4 5 Banks Ranking Based on Assets Size as of January 1, 2002:

1. first 10 top banks 2. ranking 11-3. ranking 51- RUSSIAN ECONOMY in trends and outlooks 4. ranking 101-5. ranking 201-6. ranking 501- Source: STI&K Consultancy Fig. 12. 3rd Q 2002 Returns on Assets Ratio of Banks Based on their Assets Size (except for Sberbank and ARCO-managed banks) 4.7. The National Market for Housing in 2002 and up to 200332.

The general situation in the housing market and its dynamics in 2001-The previous analysis of this particular segment of the national economy33 comprised a conclusion, as follows: having passed through the stage of decline and depressive stabilization, the housing market has entered the stage of stable growth, which was expected to end as early as in 2002.

In December 2002, results of the monitoring of the markets for housing in 9 cities of Russia and particularly Moscow oblast were concluded. The data showed that as of late 2002, the average proportional housing offer price (in USD equivalent) grew in all the cities of the sample.

Table 1 below cites price levels as of late 200, 2001 and 2002, a nominal increment in USD prices over 2001, the first half 2002 and 2002 on the whole, and an actual annual increment rate over the years in question. The actual increment in housing offer prices (IGS index34) suggests an account of the impact of inflation computed both in the Rb. and USD equivalent. According to Goskomstat, in 2001 the Rb. inflation accounted for 18.6 and 15.1% - in 2002, while the USD inflation in Russia (computed against consumer basket) 10% and 8.8%, respectively. Table 1 also contains average weighted indices across the group of capital cities of the RF Subjects (hereinafter referred to as regional centers), except for Moscow and St. Petersburg. The weighting was done with account of the share of the given citys population in the overall number of population of all the group of cities.

The present paper is based upon the housing monitoring data compiled by a group of certified by the Russian Realtor Guild (RRG) analysis of the real estate markets as well as by those due to be certified. The latter represent the following organizations: Agentstvo expertizy investitstionnykh proektov (AEKSIP), Promyshlenno- strakhovaya kompania (PSK), RAN SAVA, Kompania RMLS, Contact-nedvizhimost agency, Mielnedvizhimost, NITSA, the sub-department of marketing of the Department of investment programs of building under the Moscow city Government (all form Moscow), Informational-publishing group Bulletin nedvizhimosti, Peterburgskaya nedvizhimost Corporation, real estate agency Itaca (all from St. Petersburg), the Realtor informational center under the Ural Real Estate Agency (Ekaterinburg), Vostochno-Sibirskaya pravda Agency (Irkutsk), Internet-laboratoria (N. Novgorod), Akropoland Kontinent-Sibir real estate agencies ( all from Novosibirsk), the Perm league of realtors and appraisers, OAO Kamskaya dolina, Perspektiva Corporation ( all from Perm), TITAN agency (Tver), ZAO Center nedvizhimosti (Ulyanovsk) See: Rossiyskaya ekonomika v 2001 g. Tendentsi in perspektivy (Issue 23). M., IEPP, 2001. vol. 2, p. 169- IGS was calculated according to the following formula:: IGS=Ipr/Icp=Ipd/Iid, Ipr the index of housing prices denominated in Rb., Icp consumer price index, I the index of housing prices denominated in USD, I = I/ I the USD inflation index in Russia (relative to consumer price dynamics), I the index of depreciation of the Rb. to USD INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru Table Dynamics of the average housing offer price level in 2000-2002 (in USD equivalent) The average proportional Nominal housing cost IGS offer prices, as $/ sq. m indices Dec. Dec.

City Dec. Dec. Dec. 2001/ 2002/ 2002/ 2001 2000 2001 2002 2002 Dec. Dec. Dec.

2000 2001 Moscow* 720 940 977 1096 1,31 1,04 1,17 1,18 1,St. Petersburg 370 490 558 641 1,32 1,14 1,31 1,20 1,Moscow oblast** 352 471 515 602 1,34 1,09 1,28 1,21 1,Regional centers 379,7# (as a whole) 270 / 399 411 1,41# 1,05 1,09 1,28# 1,378,Ekaterinburg 336 484 510 518 1,44 1,05 1,07 1,31 0,Novosibirsk 263 470 467 470 1,79 0,99 1,00 1,62 0,Irkutsk 365 412 422 1,13 1,16 1,Perm 287 390 371 394 1,36 0,95 1,01 1,235 0,N. Novgorod 280 301 354 365 1,075 1,18 1,21 0,98 1,Tver 203 260 307 311 1,28 1,18 1,20 1,16 1,Ulyanovsk 158 216 229 260 1,37 1,06 1,20 1,24 1,Notes:

*computed basing on the data of RMLC, Miel-nedvizhimost, Kontakt-nedvizhimost;

** computed as average weighted values across the data on 47 cities. The weighting was based on the share of objects of the given city in the total volume of ffer;

#the average weighted value as of December 2001, without regard to Irkutsk: it was used to compute the respective housing price indices across the group of regional centers in December 2001 relative to December 2000, as the December 2000 data on this particular city is lacked (in order to ensure comparatibility).

The data above allows understanding that in 2002 it was St. Petersburg where the USD nominal price increment was the greatest one (31%), followed by cities around Moscow (28%). Prices were soaring at some 20% in N. Novgorod, Tver and Ulyanovsk, while remained unchanged in Perm and Novosibirsk (notably, the latter, with a 79% rise, was a leader in terms of housing price dynamics in 2001, while in Perm the respective index also grew fairly considerably). In 2001, in most of the cities of the sample the price increment (in USD equivalent) accounted for over 30%, while in Veliky Novgorod the growth made up moderate 7.5%.

It was, again, St. Petersburg where actual housing prices adjusted for the Rb. and the USD inflation levels in 2002 broke a record 20%, followed by Moscow oblast (18%), with the city of Moscows increment rate lagging far behind with just 7%. Overall, prices remained unchanged across the group of regional centers, though housing prices plunged by 2-8%, while Irkutsk, Tver, N. Novgorod, and Ulyanovsk witnessed a 6%11% price rise.

By contrast to a number of preceding years, 2001-02 saw changes in regularities on the housing market. More specifically, the factor of differences in market dynamics between groups of cities with different (Rb. and USD) price denomination has lost its significance. At the same time, there arose factors of post-crisis recovery rate and a normal effective demand.

However, the data of Table 1 and charts below show that last years forecasts of the situation on the national housing market were not accurate enough.

In the first half 2002, the nature of the housing price dynamics basically met expectations, i.e. it mirrored the transition from a steady growth in 2002-01 towards recession and RUSSIAN ECONOMY in trends and outlooks stabilization, except for N. Novgorod, Irkusk and Tver that had been lagging behind in terms of post-crisis price rise renewal. Between January to June 2002 the price increment in this particular group accounted for 13-18%, in the city of Moscow, Moscow oblast, Ekaternburg, Ulyanovsk between 4 to 9%, while in Novosibirsk they fell by 1%, and in Perm - by 5%. At this point, the St. Petersburg housing market formed a contrast picture vs. the others, with a 14% increment and the price rise being stable rather than fading there.

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