However, a large number of banks do not ensure the existence of high competition in the sector. In spite of the large number of participants, the Russian banking sector is considered to be significantly monopolistic. In many aspects, this fact may be explained by the dominating role played by state owned banks, which occupy leading positions on a number of markets. However, the Russian banking market is very much segmented. This fact has been determined by such specifics of the functioning of the industry, as significant gaps between banks in terms of their capitalization levels, the gaps existing between sectors of the economy in terms of the profitability levels, and the gaps between local markets in terms of the levels of availability of banking services. As a result, the competitive relations between banks may be of more complex nature, which can not be always described with the help of the primary statistical analysis. Therefore, the question how strong the competition between Russian banks is needs a further study.
The Russian banking sector is often viewed as an extremely monopolized industry. This conclusion is primarily based on the apparently dominating role played by state owned banks, first of all, Sberbank. Indeed, Sberbank, which has a number of competitive advantages, occupies the leading positions in many segments of the market of banking services.
In the case the market of household deposits is reviewed at large, judging by the results of the 4th quarter of 2004 the share of Sberbank made 60.29 per cent. However, it should be noted that, first, this share has been steadily reducing since 1999, and, second, an analysis of different segments of the deposit market permits to arrive to the conclusion that the leading position of Sberbank is not so apparent. Thus, basing on the results of the 3rd quarter of 2004, the share of Sberbank on the market of potential deposits makes only 46.28 per cent, whereas it should be taken into account that over the last years this share has shrank by 8 per cent. Sberbank is the leader on the market of long term deposits (over 1 year). At present, the Sberbank share of this market makes 56.79 per cent, whereas only years ago it made 32.6 per cent. State guarantees given with respect to deposits are a significant competitive advantage on this market. At the same time, on the market of short term deposits the state guarantees are not of decisive importance for customers. The choices made by depositors begin to be significantly influenced by other factors (the quality of servicing, availability of a “package of services,” customer tailored approach, etc.). In this regard, private banks are ready to offer terms, which are often more favorable than the terms offered by Sberbank. This factor may explain the intensification of competition in the industry observed over the recent years.
In contradistinction to the deposit market, on the market of credits there is observed the consolidation of positions occupied by Sberbank. It should be noted that whereas on the market of crediting of enterprises this trend is of an unstable nature, on the market of crediting of individual customers Sberbank is becoming leader more surely.
In the modern literature on the economy, for the purposes of study of monopolization of the banking sector there has been more often used the methods based on the theory of sectoral markets. Over the recent years, the accumulation of the necessary amount of data on the operations of individual banks has made it possible to use these methods in Russia. In order to analyze the structure of the Russian banking sector, Russian economists have selected two base models: the Bresnahan model and the Barros – Modesto model (1999). The latter model was significantly modified in order to better reflect the segmented nature of the Russian banking market.
Both models had been initially designed to measure the monopolization in the industries of the real sector of the economy and only later adapted for the analysis of the banking system. The major concept, on which the methodologies of Bresnahan and Panzar - Rosse are based, is that the behavior of banking firms is compared with several model cases: monopoly, oligopoly, and perfect competition.
Besides, just recently Portuguese researchers Barros and Modesto have offered a model in general features similar to the Bresnahan model but specifically designed for the purposes of the study of banking firms. On the one hand, this model permits to take into account the specific of banks’ behavior. On the other hand, the flaw of this model is that it provides only limited possibilities to interpret the obtained results.
The Baross and Modesto model has been developed specifically for the purposes of an analysis of the banking sector. The model pays special attention to the demand for the products of banking firms.
Exactly the parameters of the demand function permit to answer the question about the degree of monopolization of the banking industry. The model of these researchers assumes that two groups of banks are operating on a market; these groups may differ from the viewpoint of customers. The model also permits the existence of two categories of borrowers characterized by different regularities as concerns the formation of demand for credits. The first category (“good customers”) consists of financially sound firms, as a rule engaged in exports. To the second group (“bad customers”) there belong other firms generally characterized by higher risks associated with the crediting thereof. The existence of different categories of borrowers can result in the fact that two segments form on the credit market:
one is characterized by high competition and oriented towards most promising borrowers, whereas the second one, where competition is low, services all other borrowers.
In the framework of this study, the authors have modified the classical models to make them more suitable for the Russian specifics. Thus, the model of credit market takes into account the special role played by Sberbank on the market. It is assumed that Sberbank is the unchallenged leader on the market of “bad borrowers,” the fact resulting from the large resource base this bank disposes of. On the market of the most promising borrowers Sberbank has to compete with other banks on equal terms and its positions on this market may be not strong at all.
This standing of Sberbank on the credit market is explained by two factors. First, for the best borrowers not only the price terms of credits are important, but also the quality of servicing, the availability of “packages of services,” and customer tailored approaches; however, in this regard Sberbank can often loose in comparison with private banks. Second, the majority of “good borrowers” may be members of large financial and industrial groups.
It is assumed that the regularities of formation of demand for credits on the part of “bad” and “good” borrowers differ. As concerns “good” borrowers, for them of importance are not only the prices of credits, but also different non-price characteristics of services rendered by banks. Such nonprice characteristics may be defined as the amounts of extended credits, customer tailored approaches to borrowers with respect to the setting of the terms of contracts, the location of the bank, and so on.
As concerns “bad” borrowers, for them the major factor determining demand for credits is the price of borrowing.
In order to make empirical appraisals, there were used the data presented in the financial statements of 217 largest Russian banks contained in the Interfax database comprising the period from the 3rd quarter of 2000 till the 4th quarter of 2004. The banks under observation were classified into 4 groups:
banks with participation of foreign capital (hereinafter this group is indicated as “foreign banks”), largest federal banks, state owned banks (Sberbank and Vneshtorgbank), and the rest of the banks included in the sample (hereinafter referred to as “medium sized banks”). This classification has been offered proceeding from the assumption that the market behavior of banks included in different groups may differ significantly.
The appraisal of the degree of competition in individual segments of the market has been carried out basing on the panel data including three types of variables: individual characteristics of the bank calculated on the basis of the data presented in the financial statements, as well as in profits and losses reports, variables reflecting the microeconomic situation, and variables reflecting price behavior of different groups of banks.
Across all types of services rendered by banks interest rates were calculated as effective rates: the ratio between the sum of interest payments on credits / deposits and the amount of credits / deposits on the bank balance.
As it turned out, among the specific parameters affecting the amount of services offered by banks, for foreign banks significant were the ration between their capitals and assets, the share of funds on correspondent accounts with the Bank of Russia in their assets, and the share of the bank on the market of credits in the preceding period.
The analysis conducted in the course of the study demonstrates that on the Russian market of banking services there exist segments with both intensive and weak competition. It should be noted that the group of banks operating in the segment characterized by weak competition is the most numerous, what results in overestimation of the indicators of intensity of competition in the course of averaging across the whole banking sector.
The analysis revealed the heterogeneity of groups of customers on the market of credits extended to enterprises and individuals, which was the source of the weak competition environment for the majority of banks operating on these markets. Here, heterogeneity is understood as classification of customers into two groups: a limited group of customers attractive for banks, and a larger group of less attractive customers. The results of the study permit to suggest that the less homogeneous the circle of customers is, i.e. the more the gap between “good” and “bad” customers is, the less is the intensity of competition in the banking sector at large. Only a small number of banks can serve the group of attractive customers; therefore, the competition among these banks is rather high. In the Russian banking industry, mainly largest and foreign banks have the privilege to serve attractive borrowers. Each of these groups of banks has little groups of loyal customers composed of “good” borrowers on the markets under observation. Meanwhile, all other banks are working with less profitable, but more numerous customers; therefore, there is practically no competition. As a result, on heterogeneous markets the majority of banks operate in the weak competition environment.
As it turned out, in terms of the customers’ composition the market of household deposits was more homogeneous. It should be noted that private depositors do not demonstrate loyalty to any group of banks and there was observed free flow of customers among these groups. All these facts determined high competition on this market.
Basing on the results obtained in the course of the study, it may be suggested that among the measures aimed at the enhancement of competition in the Russian banking industry an important role should be played by the efforts aimed at the bridging the gaps between different categories of consumers of banking services. It may be achieved, first, by the expansion of the group of customers, for whom banks are ready to compete, and, second, by an increase in the ability of medium sized banks to render to “good” borrowers services adequate to their requirements.
As concerns the first problem, it is important to take into account the fact that borrowers are often included in the category of less attractive customers not because unsatisfactory indicators of their performance, but because of high asymmetry of information. Therefore, any measures taken to increase the exchange of information among banks and to improve customers’ transparency will be able to make the gap between different categories of bank customers narrower. Among such measures there may be indicated, for instance, organization of the work of credit bureaus, improvement of corporate reporting standards, liquidation of the institution of ephemerid firms, and so on.
As concerns the second problem, the limited capacity of medium sized banks to take part in competition struggle for the best customers may be to a significant degree explained by the factor of inadequate resource base. Alongside with the long term measures aimed at the building of customers’ confidence and tightening of requirements pertaining to the size of capital, an important role here may be played by the facilitating of the procedures governing refinancing of banks, including medium sized ones, by the RF Central Bank and the development of such an institution as syndicated crediting. Facilitation of the procedures governing the issuance of debt securities by banks may become yet another step in this direction.
S. Drobyshevsky On the Draft Concept for Improvement of Efficiency of Interbudgetary Relations in the Russian Federation over 2006-The RF Ministry of Finance has developed and submitted to the Government a draft Concept for Improvement of Efficiency of Interbudgetary Relations in the Russian Federation over 2006-2008, a draft action plan that concerns implementation of the Concept, and informational materials on the composition of interbudgetary transfers from the federal budget to budgets of the RF Subjects, on suggested indicators of efficacy of the Concept implementation, and plan of measures aimed at enhancing transparency in the course of development and execution of budgets of RF Subjects and municipal entities.
It should be noted that overall the Concept constitutes a rational and balanced document that provides for a serious of much-needed transformations. Its proposals to further formalize grounds for provision of interbudgetary transfers, create incentives to boost financial independence of regional budgets and conduct of budget reforms on the regional and municipal levels, provide methodological support to regional and municipal authorities’ efforts to improve the public finance management and enhance its transparency deserve unqualified support.
Meanwhile, there are a number of matters that the authors of the documents should consider while finalizing it. The most critical comments are:
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