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The sample group of banks showed theoverall drop in the turnover and ruble balances for federal debt. However,turnovers were falling slower and as a result the turnover to balances ratio inthe group had a 35% growth in September compared to December 2000 (Table 4). Anaverage Russian bank (less Sberbank) showed a different pattern: GKO-OFZ tradesturnover was falling while balances grew. At the same time, the turnover tobalances ratio increased 12% in September 2001 compared to December 2000. Ifone was to consider the pre-1998 period, one would notice in the GKO-OFZturnover (Table 5) a very sharp fall by a factor of 4.3. The Russian ruble debtturnover to balances ratio fell to almost one third.

Table 6

Indicators of trading activity of banksoperating on
GKO-OFZ market through MICEX

December 2000

September 2001

Monthly turnover to GKO-OFZholdings at the end of month, %



Dynamics of turnover(change in the value against December 2000), %



Dynamics of theabsolute value of the holdings (change in the indicator against December 2000),%



Dynamics of turnover/holding ratio(change in the indicator against December 2000), %



Table 7

Indicators of trading activity of Russianbanks on GKO-OFZ market

February 1998

June 1998

December 2000

September 2001

Aggregate turnover inGKO-OFZ, end of month (bln. rubles)





Aggregate GKO-OFZ holdings, end of month (bln. rubles)





Monthly turnover to GKO-OFZ holdings at the end of month,%





Dynamics of turnover (change of indicator against June 1998),%





Dynamics of the absolute value of holdings (change of indicatoragainst June 1998), %





Dynamics ofturnover/holdings ratio (change of indicator against June 1998), %





Note: less Sberbank and banks under ARCOadministration

Table 8

Aggregate turnover of banks operating withruble federal
debt on major tradingfloors

Banks operating on GKO-OFZmarket

Proportion of the aggregate turnoverin ruble federal debt (%)

December 2000

June 2001

September 2001

Leading MICEX operator banks *




Participating banks at St Petersburg currencyexchange




Participating banks at Urals currency exchange




Participating banks at Nizhniy currency and stockexchange




All banks withnon-zero turnovers over the item of ruble federal **





* banks that were the most activeparticipants in GKO-OFZ secondary trading in September – December 2001 (lessSberbank).

** - less Sberbank

Apart from MICEX, the other three mostactive GKO-OFZ trading floors are St. Petersburg, Urals and Nizhniy Novgorodcurrency exchanges. The rest of the trading floors, as of September 2001,accounted for merely 1.8% of the total GKO-OFZ turnover.

Banks participating in secondary GKO-OFZtrading at St. Petersburg currency exchange show a much smaller turnovercompared to MICEX. The aggregate turnover recorded by GKO-OFZ operator banks atSt. Petersburg currency exchange in September accounted for 9.5% of the totalturnover of all banks (barely one third of the MICEX figure). It constitutes61% of the balances on accounts by the end of quarter three whereas at thestart of the year it was up to 74%. The absolute value of the turnover did notchange much throughout the year.

At another regional exchange, NNCSE, theaggregate ruble federal debt turnover by GKO-OFZ operator banks in Septemberaccounted for 2.5% of the total turnover of all banks. The aggregate turnoverin ruble feds to the balances on accounts by the end of September stood at 60%.However, early in 2001 the picture was totally different, with the ratio of150%. The turnover dropped 11.5% over the three quarters of the year, whilebalances grew 61%.

Of interest is also the situation at theUrals currency exchange. There, GKO-OFZ operators in September 2001 accountedfor 5% of the total ruble federal debt turnover by banks. The ratio of theruble federal debt to balances on accounts was 151%. The dynamics in this ratiosince the beginning of the year were negative too: while in December 2000 theratio was 411%, in June it dropped to 193%. The three quarters’ turnover did not growsignificantly (24%) while the balances on account in the same period grew 240%.The proportion of balances in total assets over the same period grew 2.5 timesfrom 3.6% to 9%.

Thus, in the mid-and long-termperspective, the investing Russian banks will continue to regard the governmentdebt paper denominated in hard currency as the most attractive of all federaldebt instruments, the fact proved by a considerably higher proportion ofcurrency-denominated federal debt over ruble debt in the total federal debtholdings of the Russian banks (for an average statistical Russian bank (lessSberbank) currency-denominated federal debt by the end of quarter three in 2001accounted for 74% versus 26% of the ruble federal debt).

Banks on corporate andbank debt market

Over the past two years the market forruble corporate and bank bonds (CBBs) has been growing fast. The amount at parof all corporate debt offerings grew in a year from Rbs 38.9 to 65.6 billion.The secondary corporate paper market is growing fast too. For instance, atMICEX in 2001, the total secondary trades turnover for corporate bonds exceededRbs 27 bln., and in St. Petersburg trades turnover in CBBs in 2001 accountedfor more than Rbs 500 million.35

Nevertheless, this is the segment of themarket that is only emerging, and its deals are still highly risky.Specifically, the CBB market shows low liquidity and high variations in thevolume of trades. In addition, a number of events throughout the year had anegative impact on the corporate debt market. Late in March, the Central Bankof Russia banned non-residents from using their Type C accounts to purchasebonds of some Russian issuers (Inkor-Finans, BFA, Silicon). At the legislativelevel, there are as yet unresolved issues of secured bonds and the high bondissuance tax.

Banks were getting more actively involvedin this segment of the Russian capital market over the discussed period. Banksengage in a variety of transactions at this segment: they issue their ownbonds, act as underwriters, invest in corporate and bank debts acting as buyersat the time of initial placement, and deal on the secondary market.

The total turnover of Russian banks36 on the CBB market in November 2001 reached Rbs 13.5 bln., whichis 2.9 times more than in December 2000. Additionally, the number of the banksoperating on the CBB market with non-zero turnovers almost tripled by Decembersince the beginning of the year (from 43 to 121), although it still remains afraction of GKO-OFZ operators.

Note an important reduction in the gapbetween the banks’turnover in ruble corporate debt and in government paper. While in Decemberlast year the ratio between the government debt and corporate debt turnovers bythe banks was 5.5 :1, it was already 2.7 : 1 in November.

Let us discuss a sample of the banks thatinvested in ruble CBBs throughout 2001. The number in 11 months increased from61 to 138 banks.

The amount of investment made by banks incorporate debt increased in 11 months 8 times (from Rbs 1.6 billion to Rbs 13.3bln.), growing at a faster rate than turnovers. The proportion of CBBs holdingsin the assets of banks investing in corporate debt grew almost 4.6 times(without Sberbank, this value is slightly lower: 4 times), while the rublegovernment debt in the assets of CBB holders had a reverse tendency and droppedby December 1.3 times (less Sberbank, the value would have been 1.9 times).Note, however, that the dwindling ruble federal debt holdings are typical ofthe banking sector in general.

The banks dealing in CBBs are much larger(less Sberbank) than an average Russian bank: the assets of the CBB-holdingbanks accounted for 63% in the aggregate assets of active Russian banks at theend of November 2001. A similar ratio for revenues was 67%.

For some of financial indicatorsdescribing CBB-holding banks, see Table 9.

Table 9

Some indicators of CBB-holding banks*



Investment innon-government debt, in bln. rubles,



of which in resident corporate debt, in bln. rubles.



As a percentage of assets:

Non-government debt in rubles,



of which debt of resident banks



of which debt of resident corporates



Ruble federal debt



Promissory notes in rubles



by banks


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