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The investments in the house building made up a. 1/3 of the overall volume of investment in the social and civil construction. After a 5- year break, 1999 showed an increment in investment in house building and the renewal of the positive dynamics of placement of housing into operation. In 1999, enterprises and organizations of all forms of ownership built up 32.0 mln. sq.m. of living area, or at 4.3% more than in the prior year. Of 89 Subjects of the Federation, in 63 the volume of housing area built exceeded the level of 1998. The maintenance of business activity in the house building is related to both the continuation of earlier begun construction of houses and to expansion of the volume of operations.

With the government’s investment activity in the housing market falling, almost a half the housing area built was funded by the population at their own expense and with the use of loans. The comparative analysis of the dynamics of placement the housing area into operation by institutional investors shows that over the period of reforms the government share in the building of housing area fell from 70.0% in 1992 to 10.0% in 1999. Non - government investors have been very vigorous in increasing their presence in the market, and in 1999 the volume of housing built at the expense of funds of private developers and organizations of the mixed and private forms of ownership practically became equal. It should be noted that the intensive house building at the expense of individual developers has compensated for the government leaving the housing market and the fall in the non- governmental structures’ business activity.

The dynamic of placement of housing into operation at the expense of the population’s funds unquestionably was under a positive impact of the trend to slowdown of the price rise for 1 sq.m. of housing area. Given that between 1993 to 1995 the population’s intensive investment in the construction of individual housing was back-upped by the population’s active participation in operations in the savings services and foreign exchange markets, since 1996 the maintenance of the high dynamics of construction was initiated by a sharp slowdown of prices for housing.

The fall in the share of savings in the population’s income because of the Rb. depreciation and inflation basically has not affected the demand in the market for housing. That was determined by a moderate dynamics of prices for 1 sq.m. of overall area of flats. Witha 1.84- time growth in consumer prices in 1998 relative to the prior year, the prices per 1 sq.m. of the living area of standard flats grew by 55.0%, while for 1 sq.m. of advanced flats- by 57.5%.

The comparative analysis of the price dynamics for construction materials and prices for assembling work in 199 shows that the advancing price rise for capital goods and products of the industry of construction materials encourage the price rise for housing. It should be noted that after some slowdown in the pace of price rise in the market for housing that took place after the 1998 crisis, since the IInd Quarter 1999 the prices for newly built houses have tended to grow again.

The dynamics of prices for housing is fairly substantially dependent on the quality of that. With the growth in the supply of new in principle, modern kinds of flats, the situation in the market for secondary market changes in the inverse direction. In 1999, the trend to the advancing price rise for de-luxe flats was in place, while the price policy with respect to 1 sq.m. of living area in houses with standard and advanced flats showed some moderate price rise. With the growth in consumer prices at 1.36 times compared with 1998, the price for 1 sq.m. of living area rose by a. 48.1%. With a traditionally big unsatisfied demand for housing, the current situation allowed to maintain the market, though the problem of sales of finished flats has intensified. While estimating prospects of further development of the market, one should take into account that the share of savings in the population’s income dropped by 1.4 points compared with 1998, and by 10 per cent points- relative to 1997. Though since 1999 the population’s savings deposited in banks tend to grow, however, their use for investment purposes would depend on both the essence and dynamics of expenditures on current consumption and savings, and on emergence of new forms and instruments of crediting housing programs.

O. Izryadnova

Foreign investment

In 1999, the growth rate in the global volume of FDI made up 41% and peaked USD 827 bln., while the aggregate volume of foreign investments in the developing economies made up USD 198 bln., which is at 15% higher than the level reported over the prior year. The share of the Central- and eastern- European countries was accounted for USD 20 bln., including USD 9 bln that, according to some estimates, was invested in Russia. Therefore, the share of Russia in the overall volume of foreign investment in developing countries in 1999 made up 1.9% ( in 1998- 2%).

Foreign investment in the Russian economy

The average amount of foreign investment per capita in Russia made up a. USD 60 over the last five years, while the respective index for FDI is slightly over USD 20. Of the former Warsaw Treaty countries, it is Hungary, which, with the respective index being over USD 200, is the most attractive country for foreign investors.

In terms of the ratio ‘FDI as % relative to GDP of RF’ the situation is not optimistic, as FDI makes up only 1% of the country’s GDP, while the respective index in the majority of the Central- European countries is 4 to 6%.

In order to improve the country’s investment image, the new Duma proceeded with developing new legislative acts in the sphere of foreign investment. On February 16, 2000 the duma passed in the first reading the Law On investment funds, while on February 23 the parliament should discuss the establishment of a commission for protection of investors’ rights at its plenary session. It is envisaged that the new commission would deal with practical issues related to protection of investors’ rights (including the protection of minority’s rights in joint- stock companies, conflicts between labor collectives and owners, protection of the rights of investors in pension and insurance funds).

In order to develop the mechanism of regulation of conflict situation with the Russian partners, foreign investors from G-7 countries are going to establish a private structure in February to March. The trouble shooting structure is intended to deal with prevention of property and financial conflicts in Russia prior to the court.

In 1999, Morgan Stanley developed an index for developing market that has a great impact on investors’ decision- making with respect to investment. The value of each country depends upon its investment attractiveness: thus, for example, the index rate for Brazil is 12%, while the Russian one is only 3%.

Given that the level of investment in the Russian market is clearly insufficient, the political situation and main economic indices improve: in 1999, investors clearly took a ‘sit- and- wait’ stand, in the meantime the interest in the Russian market resume its growth.

E. Ilukhina

Profitability of banking operations by results of the three Quarters 1999

Considering the results of the 3 Quarters 1999, the banking sector was unprofitable. Even if one excludes the banks, whose licenses were revoked during the 4th Quarter 199, the losses as percentage to their assets, as of the end of the IIIrd Quarter, made up 1.4% Sberbank exclusive2, and 0.3%- Sberbank inclusive. The negative outcome of the activities of the banking sector as a whole was determined by 12% of banks that bore losses and the share of which in the aggregate amount of assets stood for 11%.

If one considers the results of current operations, i.e. excludes occasional revenues and losses3, the difference between results of the banking sector operations with, an without regard to Sberbank reduces notably: the losses by the whole banking sector made up 0.9% of assets, while with Sberbank exclusive- 1.4%.

At the same time, the net financial gains ( net interest and non- interest gains) proves to be positive both by the banking sector as a whole ( 5.7% of assets) and with Sberbank exclusive ( 4.9%). The losses arise primarily because of the formation of deductions to funds and reserves, which, as percentage to assets, made up 9.4% ( 9.7% Sberbank exclusive). Over 90% of the said amount falls on reserves under loans.

By themselves, the loans extended to clients from non- banking sectors were accounted for 35 to 37%, including loans due that made up 32.6% without Sberbank and 34% with Sberbank considered. However, the interest income on those made up only 8 to 10% of the total amount of financial income. It was the revenues from the re-valuation of assets denominated in foreign exchange that prevailed ( 76% with, and 70% without Sberbank).

Considering the level of interest rates that has emerged after the 1998 crisis ( see Fig. 1 and 2), the profitability rate of loans denominated in foreign exchange and Rb. differed greatly over the period in question. Given that the former ( the Rb. depreciation considered) had a average negative profitability rate over the said period ( -15.5%), the average profitability rate of the latter exceeded 70% in Rb. equivalent.4

Considering the currency structure of banks’ credit portfolio, in which loans denominated in foreign exchange were accounted for over 50%, one may assume that an actual profitability rate of credit operations was positive by the banking sector as a whole. As Fig.3 shows, the actual profitability rate of Rb.- denominated loans is entering the zone of positive values starting from agreements that were concluded in February 1999, with the recovery term on August.

The banks’ interest expenditure with respect to deposits did not play a significant part in the overall amount of financial expenditures ( 10% by the banking sector as a whole and 7%- Sberbank exclusive) as well. The expenditure on paying off interest on deposits was 9 and 6%, respectively.At the same time the expenditure related to the re-valuation of assets denominated in foreign exchange clearly prevailed ( 80 and 77%, respectively). At the same time, as percentage to the private individuals’ deposits, the interest expenditure on those made up not a negligible amount. As of the end of the IIIrd quarter, in the aggregate balance, Sberbank inclusive, private individuals’ deposits made up 20%, while Sberbank exclusive- 6%5. The correlation between the expenditure on interest and the amount of deposits made up 20 and 32%, respectively.

The time structure of time and savings deposits of private individuals differed notably: In Sberabank, the deposits with the time of up to three months prevail, while in other banks- agreemtns with the time between 6 months up to 1 year. To analyze the dynamics of depoists’ profitability rate ( see Fig. 3 and 4) we selected a three- month time. With such an assumption, it was agreements concluded between November 1998 through August 1999, which had the strongest impact on the expenditure on paying interest over the first three Quarters of 1999. By our estimates, the average profitability of Rb.- denominated deposits in real terms made up –5.5%. The declared profitability with respect to deposits denominated in foreign exchange was 9.5%. Contrast to the Rb.- denominated deposits, in real terms the profitability rate by such deposits in Rb. equivalent was positive, though slightly lower than the declared one, because of the dynamics of the Rb. exchange rate between spring through early summer 1999, which was unfavorable to the customers. Between November 1998 through August 1999 the average profitability by deposits denominated in foreign exchange was 7.6% in real terms.


Profitability of the Rb.- denominated credits to enterprises and organizations in 1998- 1999

  1. Declared rates by loans to legal entities from 6 months to 1 year
  2. Actual profitability rate ( nominal rates recalculated considering reinvesting and deflated by CPI)


Profitability of credits in foreign exchange to enterprises and organizations in 1998- 1999

  1. Declared rates by loans to legal entities from 6 months to 1 year in USD
  2. Actual profitability rate by Rb.(nominal rates recalculated considering reinvesting and deflated by CPI)


Profitability of private individuals deposits in1998- 1999

  1. Declared rates by 3- month deposits
  2. Actual profitability rate by Rb.(nominal rates recalculated considering reinvesting and deflated by CPI)
  3. Change in CPI over the month recalculated per year


Profitability of private individuals deposits denominated in foreign exchange in 1998- 1999

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