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% --Industrial output Loans to NBS Note: changes in indicators were calculated in % of the preceding quarter Estimated basing on the data provided by Goskomstat and STIiK Fig. 1. Dynamics of industrial output and loans to clients in 1999 through In the case Sberbank is excluded, the trend towards a growth in the share of loans to NBS in banks assets persist in the beginning of the year loans to NBS made 44 % of assets, and 48 % in early December, while the share of outstanding loans in loans to NBS made 1.8 % both in the beginning of the year and by the end of November.

In 2002, the outpacing growth in credits to the non-banking sector (as compared to the total increase in assets) was accompanied by a relative decline in the share of financial resources deposited with the banking sector. The share of assets deposited with the banking sector in the total amount of assets declined from 31.% to 19.8 % in 11 months of 2002 (from 38.8 % to 34.4 % without Sberbank).

About 94 % of the banks engage in crediting of NBS. The share of Sberbank in the amount of loans to NBS makes about 30 %, more than fivefold exceeding the share of the second largest lender Alfa-bank. This ratio was formed due to the domination of Sberbank in the segment of Ruble denominated loans, where its share made 37.2 % as on December 1, 2002. In the segment of forex denominated crediting, the gap between Sberbank and its competitors is not so perceptible. The Sberbank share is 14.8 %, while Vneshtorgbank accounts for 9.9 %. The share of Sberbank in forex denominated credits is somewhat higher in the case only credits granted to resident enterprises are taken into account (16.8 %).

In contradistinction to 2001, in 2002 the growth in forex denominated loans outpaced increase in the Ruble denominated credit portfolio. Therefore, the share of forex denominated credit in the currency structure of loans to NBS has increased. While in the beginning of 2002 this share in the total amount of loans to NBS made 32 %, in December it was 34.3 %, correspondingly, the share of Ruble denominated loans decreased from 68 % to 65.7 % (without Sberbank the share of forex denominated loans in the credit portfolio increased from 39.5 % to 41.3 %). At the same time, changes in the ratio between Ruble and forex denominated loans occurred at the background of actively expanding crediting of both types.

Granting forex denominated loans, banks had more and more orient toward the resources of Russias enterprises and individuals (see Fig. 2). While before the crisis of 1998 the total amount of bank liabilities related to non-residents exceeded the amount of forex denominated loans granted to resident non-banks, in the end of 1999 these indicators became equal, and by the end of 2002 banks forex denominated liabilities related to non-residents made only 58 % of the amount of forex denominated loans to resident non-banks. In 2002, among factors allowing banks to expand forex denominated crediting of NBS it is necessary to single 1 . 2 . 3 . 4 . 1 . 2 . 3 . 4 . 1 . 2 . 3 . 4 . 1 . 2 . 3 . out a growth in time forex denominated household deposits. The amount of forex denominated household deposits has increased by 49 % in US $ terms in 11 months of the preceding year.

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1 loans to resident enterprises 2 liabilities relating to non-residents Fig. 2. Russian banks: forex denominated loans to resident enterprises and liabilities relating to non-residents (US $ billion) Since banks lack the possibility to attract sufficient resources from world financial markets, it inevitably results in more expensive credits for end borrowers. As Fig. 3 demonstrates, the level of interest rates on forex denominated deposits of individuals termed 6 months to 1 year fluctuated from 6.5 % to 8 % in 2002, while the LIBOR (up to 6 months) rate was below 2.5 %.

% 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 1 weighted average interest rates on forex denominated credits to enterprises (6 months to 1 year) 2 weighted average forex denominated household deposit rates (6 months to 1 year) 3 weighted average LIBOR interest rates (6 months) Calculated basing on the data of CBR and Finmarket Fig. 3. Weighted average interest rates on forex denominated credits to enterprises (6 months to year), forex denominated household deposits (6 months to 1 year), and LIBOR rates (6 monhts) in 2000 through 2002 (in %, taking into account refinancing).

7,6,6,6,6,12,12,12.12,12,As concerns the time structure of the aggregate credit portfolio of Russian banks, the trend toward an increase in the share of shorter-termed loans, which became noticeable in 2001, did not develop further. In 2002, the share of loans termed up to 3 months declined from 23.4 % to 22 %. At the same time, the share of both Ruble and forex denominated loans termed over 1 year increased (see Table 1).

Table Time structure of loans to the non-banking sector Loan type Structure of good loans to NBS, in % 01.01.00 01.01.01 01.01.02 01.12. Loans to NBS, total 100 100 100 Loans to NBS, up to 90 days 17.8 16.9 23.4 22.Loans to NBS, 90 to 180 days 10.8 15.7 14.2 14.Loans to NBS, 180 days to 1 year 33.2 34.4 31.1 28.Loans to NBS, more than 1 year 38.2 33.0 31.3 34. Forex denominated loans 100 100 100 Loans to NBS, up to 90 days 9.5 8.0 10.7 9.Loans to NBS, 90 to 180 days 9.0 8.4 10.7 12.Loans to NBS, 180 days to 1 year 25.1 28.1 28.6 24.Loans to NBS, more than 1 year 56.3 55.4 50.0 53. Ruble denominated loans 100 100 100 Loans to NBS, up to 90 days 24.5 21.7 29.3 28.Loans to NBS, 90 to 180 days 12.2 19.6 15.7 15.Loans to NBS, 180 days to 1 year 39.8 37.7 32.3 30.Loans to NBS, more than 1 year 23.5 20.9 22.7 24.Estimated on the basis of data provided by STIiK.

A growth in the share of individuals continues in the structure of borrowers. While in 2000 the share of loans to individuals was slightly above 5 % of the total amount of loans, by December of 2002 it has increased to 8.2 % (see Table 2). This trend is characteristic for all Russian banks, and is not specific for the Sberbank credit policy. In 11 months of 2002, Sberbank increased the amount of credits extended to individuals by 65.6 % in current prices, while the respective indicator for other banks increased by 47.3 %.

This year, a decline in the share of credits extended to budgets and state owned enterprises observed in 2001 reversed as this share slightly increased.

Table Structure of loans to NBS as broken down by contractors Loan type Structure of loans*, in % 01.01.00 01.01.01 01.01.02 01.12.Loans to budget and extra-budget funds 5.8 1.7 1.3 1. Loans to resident enterprises 82.8 88.1 87.8 86.Including 8.4 8.1 5.6 5. Public enterprises Non-public enterprises 74.4 80.0 82.2 81. Loans to non-resident entrepreneurs 6.1 5.0 3.9 3. Loans to individuals 5.3 5.2 7.0 8.* including outstanding loans Estimated on the basis of data provided by STIiK.

In the total amount of credits to individuals, loans to entrepreneurs make a rather considerable percentage (19 % by the end of 2001 and 21 % as on December 1, 2002). About 1 % to 2 % make credits extended to non-residents. The rest is loans for consumer purposes, the total amount of which made Rub. 113.3 billion by the end of the period under observation. Sberbank accounts for more than a half of this amount. At the same time the bulk of credits was denominated in Rubles (more than 80 % for all banks and more than 70 % without Sberbank) termed over 1 year (see Table 3). As concerns Sberbank, especially large share of its credits make loans termed over 1 year the bulk of consumer loans it extends for terms exceeding 3 years.

Certain banks, which can not compete with Sberbank in terms of their client bases, try to compete being more operative. While Sberbank spends several days to extend a credit, such banks as Russky Standart and Pervoe O.V.K. try to expand their shares of the market actively promoting so called express crediting and extend the credit the same day the client apply for it. However, the usual terms of such credits make six months to one year, while rates and other servicing expenses are much higher than at more conservative banks7.

Table Time structure of consumer credits Type of credit All banks including Sberbank All banks without Sberbank 01.01.02 01.12.02 01.01.02 01.12.Consumer credits, total 100 100 100 Up to 90 days and demand credits 7.1 6.3 11.7 11. 90 to 180 days 2.8 2.9 4.6 5. 180 days to 1 year 17.8 18.5 27.9 29. Over 1 year 72.3 72.3 55.8 54. Of which over 3 years 50.6 51.5 31.7 28.Estimated on the basis of data provided by STIiK.

More than 85 % of banks extended credits for consumer purposes as on December 1, 2002. On the average, such loans made less than 3 % in the total bank assets (without Sberbank)8. In the case banks are broken down by this indicator and the bank with the share of consumer loans above the average is compared with the average bank of the sample of functioning banks without Sberbank, it turns pit that the banks more actively developing this line of business are somewhat smaller in terms of amount of their assets (Rub. 1.billion as compared with Rub. 2 billion on the average). Besides, such banks demonstrate a higher share of loans to NBS in their assets (54.6 % as compared with 48 % on the average) and are less inclined to invest in securities (debentures and stocks make 5.4 % in their assets as compared with average 9.9 % for functioning banks without Sberbank).

At the same time, it may be stated that about hundred banks specialize in this type of crediting the share of consumer credits was above 20 % in the assets of 84 banks. The average amount of assets of banks singled out basing on this criteria is rather small only Rub. 337 million as on December 1, 2002. Accordingly, their total share in consumer credits extended by banks made only 9.2 %. At the same time, Agrooptbank accounted for more than one third of the total amount of consumer loans extended by this group of banks.

For purposes of comparative analysis of the structure of balances of banks singled out basing on the criteria of specialization in consumer crediting this bank was excluded from the sample, since the specifics of its resource base distorted the aggregate structure of the group. Due to the same reasons KMB banks was also excluded, since the basis of its resource base were EBRR funds what naturally is not characteristic of the total group. Exclusion of these two banks resulted in even smaller size of the average assets of this group of banks (see Table 5). Similarly to the group of banks with the share of consumer credits above the average, they demonstrate higher shares of loans to NBS in the assets (53.9 %), while their portfolios of securities are very small (1.7 % of the assets). At the same time, the share of loans to individuals is more than tenfold higher than the average (61.5 % as compared with 6.5 %). As concerns the structure of liabilities, it does not differ much from the average. A higher share of capital is most probably related to the very small amount of assets. A higher share of market instruments promissory notes and bonds results from the effect of specifics of individual banks on the average indicators of the group. For instance, in the case Prominvestbank is excluded, the average value of the ratio between issued promissory notes and assets declines from 12.2 % to 7.2 %. As concerns the profitability of this policy, both groups demonstrate ROA indicators below the average. Both in the sample of banks with consumer loans above the average and in the sample with the share above 20 % the ratio between profits over 3 quarters and assets registered in the beginning of the year was below the average (3.3 % in annualized terms on the average as concerns functioning banks without Sberbank and 2.2 % in groups actively crediting individuals). The group with the share over 20 % derived significantly higher profits from crediting than the average (see Table 6). This fact is relating not only to the higher share of loans in their assets. In the case the influence of this factor is eliminated, profitability of credit operations in this group remains higher. While the average ratio between interest yields related to loans to NBS and the amount of non-outstanding loans to NBS extended in the beginning of the year made See: Delovoi Peterburg, 01.11.02.

For comparison, in countries of South-Eastern Asia where consumer crediting is booming, credits to individuals make about 40 % of bank assets in comparison with 27 % registered before the crisis of 1997. The amount of mortgage lending carried out by Chinese banks exceeds US $ 30 billion (a fivefold increase in two years) see The Economist Feb 6th 2003.

15.7 %, this indicator for the group of banks specializing in consumer crediting was 28.2 %, and the ratio between interest yields relating to consumer loans to individuals and the amount of non-outstanding loans of this type made 33.2 %.

Higher revenues of this group of banks corresponded to higher expenditures, both interest and administrative expenditures in this group were above the average. The latter fact may be explained by very small amounts of assets in the group. While on the average administrative expenditures over 3 quarters made 4.8 %, in this group they were at 7.7 %. As a result, profits before taxes were below the average.

72% of banks specializing in consumer crediting are located in regions (see Table 4), what predetermines the very low amount of assets in the group. Both Moscow based and regional banks issue the majority of loans denominated in Rubles. However, the time structure differs significantly. While Moscow based banks extended about two thirds of loans for more than one year, the respective indicator of regional banks makes only 36.2 % (see Fig. 4) and loans termed 6 to 12 months make a similar share.

Moscow banks Regional banks 1- Up to 3 months 2- 3 to 6 months 3- 6 to 12 months 4- 1 to 3 years 5- over 3 years Fig. 4. Distribution of consumer credits as broken down by term at Moscow based and regional banks specializing in consumer crediting.

Table Regional distribution of banks specializing in consumer crediting as on December 1, 2002.

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