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An analysis of the structure of earnings and expenditures of banks demonstrates that since recently the efficiency of bank operations has relatively insignificantly depended on credit and deposit operations; although net interest proceeds make more than a half of the net financial incomes.

Over 2005, in accordance with the data presented by the Bank of Russia15 the interest rates pertaining to the credits extended to enterprises decreased from the level of 10.5 per cent to 12.9 per cent, at which they persisted in 2004, to 10.1 per cent to 10.7 per cent. The interest rates on the ruble denominated deposits of individuals have changed even less significantly: the rates on deposits without taking into account the demand deposits fluctuated from 11.4 per cent registered in January to 9.7 per cent observed in June in 2004, whereas in 2005 this band made from 10.2 per cent in January to 8.7 per cent (in April, August, and October).

There was observed no significant changes in the shares of credits and deposits in the structure of banks assets and liabilities in 2005. The share of loans extended to the non-banking sector in the assets of banks made 54.9 per cent as on January 1, 2005, whereas as on October 1, 2005, this indicator was registered at 54.8 per cent. The share of deposits made by individuals has returned to the level observed at the end of 2004 by the end of the 3rd quarter and made 16.2 per cent as compared with 16.1 per cent registered as on January 1, 2005, after demonstrating some growth in the period from 2002 and the 1st quarter of 2005.

As a result, the ratio between the interest incomes and interest expenditures and assets has changed insignificantly; respectively, the indicator of the interest margin has been rather stable. In 2004, the difference between the level of interest incomes and expenditures made 4.8 per cent, whereas over the first 3 quarters of 2005 this indicator was registered at 4.9 per cent. Such a result observed in the situation of smoothly decreasing level of interest rates on credits and deposits and their stable share in the banks balance sheets required a certain change in the policies banks pursued on these markets. In particular, banks have not only increased their portfolios of consumer credits, the interest rates on which were on the whole higher than on loans extended to enterprises and organizations, but also increased the share of loans extended to individuals in the total amount of credits. Over the first months of the year, the share of loans extended to individuals in the banks credit portfolios grew from 12 per cent to 15 per cent.

The data presented at figures 1 and 2 permit to compare the profitability of banks operations pertaining to the crediting of enterprises and individuals.

Hereinafter the relative indicators of profitability over the period are compared with the average amount of assets over the period. The group indicators have been calculated as weighted means.

Vestnik Banka Rossii (Bulletin of the Bank of Russia) No. 66, 2005. The data are presented without the Sberbank, in 2005 the data are presented for 10 months of the year.

% 1 2 3 4 5 Groups as broken down by the amount of assets as on October 1, 1 - banks, ranked from 1 to 2 - banks, ranked from 11 to 3 - banks, ranked from 51 to 4 - banks, ranked from 101 to 5 - banks, ranked from 201 to 6 - banks, ranked from 501 to Calculated basing on the database presented by the firm STIiK Fig. 1. Ratio between interest incomes on loans extended to enterprises and organizations and loans extended to enterprises and organizations as broken down by groups depending on the size of assets (without Sberbank).

% 1 2 3 4 5 Groups as broken down by the amount of assets as on October 1, 1 - banks, ranked from 1 to 2 - banks, ranked from 11 to 3 - banks, ranked from 51 to 4 - banks, ranked from 101 to 5 - banks, ranked from 201 to 6 - banks, ranked from 501 to Calculated basing on the database presented by the firm STIiK Fig. 2. Ratio between interest incomes on loans extended to individuals and loans extended to individuals as broken down by groups depending on the size of assets (without Sberbank).

The ratio between administrative costs and assets has on the whole stabilized at the level of 4.5 per cent; however, as it is seen from the data presented in the table, as concerns small banks this indicator is two times above the level demonstrated by large banks. In comparison with large banks, small banks bear especially high costs for remuneration of their personnel and rent of premises.

Table 1.

Structure of net financial incomes of banks in the first 9 months of 2005 on the annualized basis Groups as broken down by the amount of assets Indicators in per cent to assets mean 1 2 3 4 5 Net financial income 7.7 9.6 9.5 10.1 10.4 11.2 9.

Net interest income 4.3 4.9 5.3 5.6 5.9 6.3 4.Interest incomes 7.4 8.3 8.6 9.3 9.5 9.2 8.Interest expenses 3.2 3.4 3.3 3.7 3.6 2.9 3. Net non-interest income 3.4 4.7 4.2 4.5 4.5 4.9 4.Commission earnings 1.1 2.3 1.6 1.9 2.3 2.9 1.On operations on financial markets 0.6 0.5 1 0.6 1 1.4 0.Foreign exchange operations 0.3 0.2 0.8 0.3 0.5 0.8 0.Precious metals operations 0 0 0 0 0 0 Forward exchange and derivative operations -0.2 0 -0.2 0 0 0 -0.Securities operations 0.5 0.3 0.4 0.3 0.5 0.6 0. On revaluation of currency funds and securities 1.1 1.2 1.2 1.6 0.3 0.2 1.Revaluation of currency funds 0.1 0 0 0.1 0 0 0.Revaluation of securities 1 1.2 1.2 1.5 0.3 0.2 Leasing 0 0 0.1 0 0 0 Other operating incomes 0.6 0.7 0.3 0.3 0.8 0.4 0. Administrative costs, including 3.5 4.5 4.4 5 6 7.6 4. Remuneration of personnel, including contributions for social insurance 1.7 2.1 2.3 2.5 3 3.6 2. Amortization 0.1 0.2 0.2 0.2 0.2 0.3 0. Rental payments 0.3 0.4 0.3 0.4 0.6 1 0. Taxes charged against expenses 0.2 0.3 0.2 0.3 0.3 0.4 0.Net operating income 4.2 5.1 5.1 5.1 4.4 3.6 4.Changes in reserves -0.1 2 1.6 1.9 1.5 1.3 1. Net results of irregular operations 0 0.1 0 0.1 0.1 0.1 0.Profit before irregular earnings and expenses 4.2 3.1 3.5 3.1 2.9 2.3 3.Income before tax 4.3 3.2 3.5 3.2 3 2.5 3. Memorandum: number of banks in the group, the indicators of which were included in calculations 10 40 50 98 297 753 In the situation of stable levels of net interest incomes and administrative costs, the indicators of efficiency turn out to be rather sensitive to the changes in the indicators of non-interest incomes and expenses. Judging by the results of the first 3 quarters of 2005, the net non-interest incomes of Russian banks in per cent to their assets turned out to be by 10.8 per cent above the figures registered in (4.1 per cent as compared with 3.7 per cent). The incomes, the banks received from their operations with securities and primarily from the revaluation of their securities portfolios, where the respective incomes made 1 per cent of their assets, or 11 per cent of the net financial incomes received by banks over the first 3 quarters of the year, accounted for the main contribution to this indicator.

As a result, the largest banks turned out to be most profitable. As concerns other groups, the average indicators remained below the mean value for all banks (see table 1). However, the gap pertaining to the indicator of the profit to capital ratio was especially large (40.2 per cent in the group of 10 largest banks in terms of the sizes of their assets as compared with 9.1 per cent in the group of smallest banks see figure 3). At the same time, as on October 1, 2005, in the group of 10 largest banks in terms of the sizes of their assets the fluctuations of ROE were also rather significant: the gap between the minimal and maximal values of this indicator exceeds 5 times.

% 1 2 3 4 5 Groups as broken down by the amount of assets as on October 1, 1 - banks, ranked from 1 to 2 - banks, ranked from 11 to 3 - banks, ranked from 51 to 4 - banks, ranked from 101 to 5 - banks, ranked from 201 to 6 - banks, ranked from 501 to Calculated basing on the database presented by the firm STIiK Fig. 3. RO on the annualized basis of results of three quarters of 2005 as broken down by groups depending on the size of assets (without Sberbank).

Sycheva L. I., Mikhailov L. V.

The Real Sector of the Economy: Major Factors and Trends In 2005, the amount of GDP made Rub. 21665.0 billion and was by 6.4 per cent above the level registered in the preceding year. The increase in industrial output made 4.0 per cent, retail trade turnover 12.0 per cent, investment in fixed assets 10.5 per cent, whereas the freight turnover grew by 2.per cent in 2005.

In January of 2006, the index of industrial production made 104.4 per cent as the output of manufacturing industries increased by 4.1 per cent and output of extracting industries grew by 0.9 per cent. The index of production pertaining to the extraction of fuel and energy mineral resources made 101.2 per cent in January of 2006. In the same month, the extraction of oil, including gas condensate, made 39.9 million metric tons, or 101.9 per cent, whereas the production of natural gas increased by 3.7 per cent. In January of 2006, the electric power output increased by 2.2 per cent in comparison with the figures registered in December and by 7.9 per cent in comparison with the level observed in January of 2005, what in terms of heat power meant an increase by 13.8 per cent and 13.7 per cent respectively. The share of electrical power generated by thermal power plants in the total generation of electrical power increased from 68.8 per cent registered in January of 2005 to 72.1 per cent observed in January of 2006.

In 2005, high oil prices, which facilitated additional growth not only in terms of amounts of exports, but also household incomes, trade, and investment in fixed assets, were a positive factor of economic development. The dynamics of real amount of produced GDP were also positively affected by the increase in the share of added value in construction, the manufacturing sector, and the sector of real estate operations. The deceleration of the rates of growth in GDP by 0.8 p. p. in comparison with the figures registered in 2004 was primarily determined by the moderate dynamics of growth in industrial output and volumes of exports in spite of the exceptionally favorable external economic business situation. In 2005, the gross added value generated across industries on the whole increased, by estimates, by 3.3 per cent as compared with 6.0 per cent observed in 2004. At the same time, the growth in the gross added value in the sector of extraction of mineral resources made 1.8 per cent in comparison with 7.2 per cent respectively, whereas in the manufacturing sector this indicator was registered at 4.4 per cent as compared with 6.6 per cent.

In the situation of persisting high levels of business activity, the changes in the structure of rendering of transport services was determined by the general economic situation, as well as the settlement of a number of practical problems concerning the coordination of the transport infrastructure. The state of the Russian transport system was not a direct barrier to economic growth; however, its inefficiency resulted in higher transport costs and loss of earnings associated with transit transportation. In 2005, the increase in the amount of gross added value generated in the sector of transport and communications made 6.1 per cent in comparison with 10.5 per cent registered in 2004. The dynamic growth in the transport sector was supported by increasing demand for the services of pipeline transport, whereas the increase in communications services resulted from an intensive development of new segments of the market of mobile communications.

Table Dynamics of volumes of added value generated across industries and GDP (the increment in per cent of the figures registered in the respective period of the preceding year) Including by quarters Including by quarters 2004 I II III IV 2005 I II III IV GDP 107,2 107,6 107,7 107,1 106,4 106,4 105,2 106,1 107,0 106,including:

Agriculture, hunting, and forestry 102,9 99,1 99,0 103,8 100,6 101,1 100,5 100,4 103,3 100, Fishery and fish farming 101,7 96,8 104,6 103,6 104,2 104,6 115,2 109,2 112,0 112, Extraction of mineral resources 107,2 107,9 108,2 106,2 106,2 101,8 103,0 101,2 101,0 101, Manufacturing industries 106,6 109,6 108,4 107,9 106,5 104,4 99,6 102,8 104,9 104, Production and distribution of electrical power, natural gas, and water 100,9 99,6 103,5 100,4 100,6 102,2 100,6 100,7 100,9 101, Construction 110,1 113,9 114,7 106,9 107,7 109,7 104,6 106,6 111,1 111, Wholesale and retail trade;

repairs of motor vehicles, motorcycles, household appliances, and personal demand items 111,2 109,5 110,5 110,2 110,3 112,3 109,4 110,8 112,0 110, Hotels and restaurants 103,0 107,7 108,6 107,4 107,0 115,6 111,6 110,9 107,0 107, Transport and communications 110,5 109,4 111,7 111,2 109,9 106,1 106,2 106,8 105,9 106, Financial activities 104,5 111,3 111,0 111,1 107,0 106,5 102,5 103,8 104,1 103, Real estate operations, renting and rendering of services 103,1 107,7 105,8 104,1 104,2 109,6 104,4 107,3 109,0 109, State administration and ensuring of military security; mandatory social security 100,6 103,2 103,7 103,9 103,8 102,8 108,3 102,7 103,6 103, Education 100,9 101,4 101,5 101,9 102,0 101,9 100,9 102,9 102,0 102, Health care and provision of social 101,1 100,5 101,6 101,9 104,0 101,0 101,9 102,0 101,7 102, Provision of other communal, social, and personal services 118,4 103,7 105,4 104,2 102,9 108,0 114,1 105,5 108,2 108,Source: Rosstat.

In 2005, the amount of communications services grew by 15.7 per cent. Telephone communications were the most widespread type of electrical communications at large. This type of telecommunications generated of the total proceeds brought about by the services provided by the sector, whereas mobile electrical communications account for 40 per cent of the proceeds generated by the telephone communications on the whole. The share of new communications providers amounted to almost 3/5 of the total amount of communications services and more than half of communications services rendered to households. As on October 1, 2005, the total number of subscribers of cellular communications made about 110.3 million increasing by 39.0 million, or 54.6 per cent since the beginning of the year.

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