#1用 Bank of Russia The Central Bank of the Russian Federation BANK POCCU RUSSIAN FINANCIAL SECTOR Investor presentation August 2018#2Bank of Russia: Overview Bank of Russia The Central Bank of the Russian Federation CONTENTS Evolution - 4 Reforms - 7 Compliance with international standards - 8 International cooperation - 9 Financial market development strategy - 10 Fintech - 11 Market place - 13 Newsletter 14 Key indicators - 16 Macrofinance - 17 Inflation - 18 Economic forecasts - 19 Inflation expectations - 21 Monetary policy - 22 Financial stability - 23 Russian Macro Update Russian Financial Sector Banking sector - 26 Microfinance - 31 Securities market - 32 Corporate governance - 42 Countering malpractice - 43 Insurance 44 - Non-state pension funds - 45 Investment funds - 46 Commodities - 47 Payment infrastructure - 48 Consumer protection - 51 Financial inclusion - 52 AML/CFT - 53 Cybersecurity-54 2#3Bank of Russia The Central Bank of the Russian Federation BANK OF RUSSIA: OVERVIEW#4Bank of Russia The Central Bank of the Russian Federation EVOLUTION (1) BANK OF RUSSIA: OVERVIEW 4 Central Bank of Russia (CBR): founded in 1990 1990 Law on banks and banking activities - Law on Central bank of RSFSR 1992 Russia becomes an IMF member 1995 Law on Central bank of RSFSR: amendments 1996 CBR becomes a BIS member 2001 Law on AML/CFT 2002 Law on the Central Bank of the Russian Federation 2003 Russia becomes a FATF member - Start of the IFRS reporting project - Law on deposit insurance 2005 Introduction of corridor for USD&EUR basket within the exchange rate policy framework 2009 CBR becomes a BCBS member - CBR becomes a CPMI member 2010 Introduction of floating exchange rate corridor 2011 Law on National Payment System 2013 CBR becomes an IAIS member as well as IOSCO member 2014 - Inflation targeting regime with 4% medium-term target rate - Introduction of a floating exchange rate regime - Approval of a new corporate governance code - National Card Payment System Joint-Stock Company (AO NSPK) established 2015 - Signing of the IOSCO Multilateral Memorandum of Understanding - National payment system "Mir" established and "Mir" card issue started 2016 Banking regulation in Russia assessed as compliant with Basel II, Basel 2.5 and Basel III (RCAP) 2017 2018 Introduction of proportional regulation in banking sector Bank of Russia joins MMOU IAIS 1990 1995 2000 2005 2010 2015 Focus on Russian financial market development 1992 MICEX established - Law on insurance business 1995 - RTS exchange established 1996 Law on securities market 1996-Law on joint-stock companies 1999 Law on protection of rights of securities market investors Federal Financial Markets Service (FFMS): 2002 - First edition of the Russian corporate conduct code 2003 - Law on mortgage-backed securities 2011 - Law on insider trading - MICEX and RTS merge into the Moscow Exchange - FISS joins FFMS and the latter becomes insurance market regulator 2012 National Settlement Depository obtains status of the Central Securities Depository (CSD) of Russia 2013 National Clearing Center obtains status of the first qualified Central Counterparty (CCP) in Russia 2013 CBR becomes the megaregulator of the Russian financial sector founded in 1993 2020#5Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation EVOLUTION (2) Monetary policy framework development 2006 Inflation targeting announced Inflation targeting is represented as a midterm goal in the "Monetary Policy Guidelines" 1998 - 2008 Narrow band 2008 2009 Active inflation targeting communications Liquidity management Instruments are developed, the interest rate corridor is narrowed Monetary policy framework development Exchange rate regime development 2012 2013 Transition deadline Key rate introduced set "Floating rate and inflation targeting by 2015" 5 2014 Floating exchange rate introduced Since Dec. 2017 Inflation below 4% (2.5% as of July 2018) 2008 - 2014 Flexible band 2015 Transition to the inflation targeting regime is completed Since Nov. 2014 Free floating Ruble#6Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation EVOLUTION (3) Bank of Russia supervises the following key segments Banking sector Market infrastructure, including fair pricing Payment infrastructure Non-state pension funds Asset managers Securities market, including securities market professionals Microfinance Credit rating agencies Insurance sector 6#7Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation REFORMS Promoting price and financial stability, fair competition, newest technologies and best practices Monetary policy inflation targeting regime adopted with a 4% medium-term target rate pursued using conventional monetary policy instruments Banking regulation and supervision banking sector rehabilitation in progress, bank resolution mechanism new introduced; proportional regulation introduced and an advanced IRB approach for the largest banks gradually phased in; banking regulation compliant with the Basel II, Basel 2.5 and Basel III standards, maintaining AML/CFT supervision of credit and non-credit financial institutions (according to the Regulatory Consistency Assessment Program (RCAP) 2016); deposit insurance with RUB 1.4 mln as a limit (in some cases - up to RUB 10 mln); setting up a national rating industry. Only credit ratings of Russian national agencies may be used for regulatory purposes 0 Market infrastructure benefits from infrastructure put in place, tax and regulatory reforms (T+2, CSD and access of ICSDS, up-to-date CCP, Individual Investment Accounts, IIA) Corporate governance JS companies segregation into public and non- public, corporate actions reform, new corporate governance code adopted in 2014, listing rules based on the new corporate governance code, listing committees established Pension system guarantee fund mechanism introduced, investment horizon for non-state pension funds extended to 5 years Payment infrastructure Russian payment system infrastructure developed and currently in use by all leading international payment systems payment infrastructure monitoring and supervision 7#8Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation COMPLIANCE WITH INTERNATIONAL STANDARDS Russia complies with or implements key international standards and best practices FATF Russia's Anti-Money Laundering system is compliant with FATF Recommendations BANK FOR INTERNATIONAL SETTLEMENTS MONEY MONE TARY FUND High FSAP grades in all surveyed segments, including securities market, insurance and payment infrastructure THE WORLD BANK BRD -IDA Russia ranks #35 in DOING BUSINESS-2018 ratings ATZ OICU-IOSCO Banking regulation is compliant with Basel II, 2.5 and Basel III (RCAP 2016) Bank for International Settlements, IAIS and IOSCO Principles for financial market (PFMI) are being infrastructures implemented Upon monitoring the implementation of the PFMI, the CPMI gave Russia the highest-possible '4' rating National Settlement Depository is eligible for custody arrangements under Rule 17f-7 of the US Investment Company Act of 1940 LINOW TARY FUND Russia is a party to the Articles of Agreement of the IMF and upholds free movement of capital Insurance sector has started implementing Solvency II European principles 8#9Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation 6 INTERNATIONAL COOPERATION Bank of Russia cooperates with international financial institutions, regulators and associations BANK FOR INTERNATIONAL SETTLEMENTS WORLD ECONOMIC FORUM IOPS G20 INTERNATIONAL ORGANISATION OF PENSION SUPERVISORS FSB EAG FINANCIAL STABILITY BOARD MAS ERNATION 3LNI MONET AL 1 * FUN ORGANIZATION THE WORLD BANK WORLD TRADE IBRD-IDA OICU-IOSCO Monetary Authority of Singapore E.A.S.T EAEU Eurasian Economic Union BRICS COUNCIL CONSEIL OF EUROPE DE L'EUROPE COMMITTEE OF EXPERTS ON THE EVALUATION OF ANTI-MONEY LAUNDERING MEASURES AND THE FINANCING OF TERRORISM (MONEYVAL) FIRST ISDA Improving Security Together Safe, Efficient Markets European Securities and esma Markets Authority FATF International Capital Market Association AAI IAA INTERNATIONAL ACTUARIAL ASSOCIATION ASSOCIATION ACTUARIELLE INTERNATIONALE ICMA IAIS INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS OECD BETTER POLICIES FOR BETTER LIVES#10Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation 10 FINANCIAL MARKET DEVELOPMENT STRATEGY Guidelines for the Development of the Russian Financial Market in 2016 - 2018 Bank of Russia GUIDELINES FOR THE DEVELOPMENT of the Russian Financial Market in 2016-2018 The Bank of Russia Guidelines for the Development of the Russian Financial Market in 2016 - 2018 (presented in 2016 and undergone discussion with market participants in 13 Russian regions) cover the following areas: ✓ Consumer financial protection and financial literacy of the population of the Russian Federation; ✓ Improving financial inclusion for households and small and medium-sized businesses; ✓ Discouraging malpractice in the financial market; ✓ Enhancing investor appeal for the equity financing of public companies via improved corporate governance; ✓ Development of the bond market and syndicated lending market; ✓ Improvement of the financial market regulation, including the use of proportional regulation and optimization of regulatory burden on financial market participants; ✓ Advanced training for professionals working in the financial market; ✓ Incentives to electronic interaction mechanisms in the financial market; ✓ International cooperation for the development and implementation of rules regulating the global financial market; ✓ Improvement of tools ensuring financial market stability. Currently the Bank of Russia is working on the new Guidelines for the Development of the Russian Financial Market in 2019-2021.#11Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation 11 FINTECH (1) Russia provides a favorable environment for FinTech development Goals of the Bank of Russia as a high-tech regulator Facilitate the competition in the financial market Enhance accessibility, quality and range of financial services Lower risks and costs in the financial market Advance the level of competitiveness of Russian technologies Key areas of development 1. Legal regulation of FinTech, including protection of consumer rights and security of personal data 2. Development of digital technologies in the financial market and development of digital infrastructure 3. Transition to electronic interaction between the Bank of Russia, government, market participants and their clients 4. "Regulatory Sandbox" for experimentation with innovative financial technologies, products and services 5. Cooperation within the Eurasian Economic Union and development of single payment area for member states 6. Ensuring technological safety and sustainability in FinTech implementation 7. Development of human resources in the financial market#12Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation FINTECH (2) Russia provides a favorable environment for FinTech development & FINTECH Ф ASSOCIATION Main goals Implementation of new technological solutions for the development of the Russian financial market ✓ Promotion of digitalization of the Russian economy Established on 28 December 2016 by the Bank of Russia with participation of the largest financial institutions Main activities (2017-2018) Digital identification ✓ Distributed ledger technology Fast payment system ✓ Open API ✓ Big Data 12#13Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation 13 MARKET PLACE Shaping future of financial services experience in Russia ✓ New system for online sales of financial products ✓ Aimed at replacing traditional sales channels with websites and smartphone apps which will enable customers to compare multiple financial product offers ✓ CBR arranges the regulatory environment necessary for the project Development of competitive environment and financial services optimization Competition Customers Equal access to financial market Technologies Open API and fast payments system#14Bank of Russia BANK OF RUSSIA: OVERVIEW The Central Bank of the Russian Federation NEWSLETTER Key news from the Bank of Russia 14 July 27, 2018 The Bank of Russia keeps the key rate at 7.25% p.a. July 24, 2018 June 25, 2018 May 23, 2018 May 21, 2018 May 1, 2018 April 24, 2018 April 23, 2018 January 1, 2018 Higher requirements introduced to the minimum authorized capital for insurers: RUB 450 mln for companies offering life insurance, RUB 300 mln for personal and property insurers and RUB 600 mln for reinsurers. The Bank of Russia introduces 16 criteria of economic relations between related party-borrowers to calculate N6. The Bank of Russia raises risk weights on FX loans and securities, effective from July 1. The new FX risk weights are: 110% (from 100%) for exporters, 150% (from 130%) for real estate purchase, 130% (from 110%) for other FX corporate loans. Launch of cross-margining across markets on the base of Unified Collateral Pool on the Moscow Exchange. The Bank of Russia tightens the regulation of unsecured consumer credits by reviewing its requirements for risk ratios. The Bank of Russia suggests introducing the principle of proportionality in non-bank financial institutions regulation. Law on rehabilitation of insurance companies was signed. ✓ The risk ratios for mortgage loans with LTV higher than 80% and 90% are tightened by the Bank of Russia, reaching 150% and 300% respectively. ✓ Basel III in force: Leverage ratio (except for banks with basic license), NSFR – for D-SIBS - ✓ Unification of personal income tax regimes for Ruble bonds and bank deposits Bank of Russia switches to proportional regulation of the banking system ✓ Capital buffers under Basel III are increased: capital conservation buffer is 1.875%; countercyclical capital buffer is 0%; buffers for systemically important banks are at 0.65% ✓ Banks are required to introduce IFRS 9, which supersedes IAS 39#15Bank of Russia The Central Bank of the Russian Federation RUSSIAN MACRO UPDATE#16Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation KEY INDICATORS Clear signs of macro stabilization across the board Figure 1: Real GDP growth started to recover (YoY, %) Figure 2: Retail trade turnover and real wages dynamics (YoY, %) Retail trade turnover Real wages 15 8 6 10 4.3 3.5 4 5 1.3 2 0.7 0 1.5 -0.2 0 -5 -2 -10 -2.8 -4 -15 2011 2012 2013 2014 2015 2016 2017 01.15 06.15 11.15 04.16 09.16 02.17 07.17 12.17 05.18 Private consumption Investment Figure 3: Russian economy recovered driven by private consumption and investment (YoY, %) Figure 4: Russian Ruble volatility remains low while in free-floating 15.0 9.1 7.9 Investment 3.6% 10.0 5.2 Private consumption 3.4% 5.0 2.0 6.8 0.8 5.0 1.3 - 5.0 - 2.8 - 1.8 - 10.0 - 9.4 - 11.2 - 15.0 2011 2012 2013 2014 2015 2016 2017 Source: Bank of Russia, Rosstat RUB per 1 USD 90 80 70 60 50 40 30 12.14 03.15 06.15 09.15 12.15 ཚན་ དྲུབ་ 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 7.2 3.0 16#17Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation MACROFINANCE Russian economy has adapted to lower oil prices 17 17 Figure 5: Current account surplus amounted to USD 35.2 bn in 2017 Figure 6: Strong fiscal position: budget consolidation and fiscal rule 120 Russian Federal Budget Balance, % of GDP, Ihs Urals, $/bbl, rhs 12 120 100 72.2 80 60 8 5.4 4.1 4 0.4 -0.2 -0.8 40 0 35.2 -4 20 -8 0 -12 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Figure 7: Significant international reserves assuring financial stability USD bn 600 537.6 550 500 450 400 350 300 Reserves -3.9 -6.0 -0.7 T T 100 80 0.5 60 -1.3 -2.8 -3.9 40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 20 Figure 8: Public debt to GDP among the lowest in both EM and DM (2016, %) Reserves/GDP = 27.4% Reserves cover 10.9 months of import* Import in May 2017 - May 2018 360 300 = USD 363.9 bn 240 456.7 180 120 60 0 * As of August 1, 2018 Public Debt/ GDP External Debt/ GDP Russia: 01.13 07.13 01.14 07.14 01.15 07.15 01.16 07.16 01.17 07.17 01.18 07.18 Source: Bank of Russia, International Monetary Fund, Thomson Reuters, Ministry of Finance Public Debt/ GDP = 16% External Debt/ GDP = 40% Saudi Arabia#18Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation INFLATION After two years of disinflationary policies inflation target successfully reached in 2017 Figure 9: Inflation is around 4% (YOY, %) 24% 20% 16% 12% 8% 4% 0% CPI ...Non-food products .....Food ....Services Key rate January 2016: Oil prices reach their lowest level in a decade Medium-term inflation target - -4% 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 Source: Bank of Russia, Rosstat 18#19Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation ECONOMIC FORECASTS (1) Baseline scenario*: medium-term outlook for the Russian economy 19 2018 2019 2020 as % of previous year (unless indicated otherwise) Urals price (annual average), US dollars per barrel Inflation, % in December year-on-year Inflation, yearly average Gross domestic product Final Consumption Expenditure - households Gross formation -gross fixed capital formation Exports 2017 (actual) Baseline* 53 67 55 50 2.5 3.5-4.0 4.0-4.5 4.0 3.5 2.5-3.5 4.0-4.5 4.0 1.5 1.5-2.0 1.5-2.0 1.5-2.0 2.6 2.5-3.0 2.3-2.8 2.0-2.5 3.4 3.3-3.8 2.8-3.3 2.5-3.0 7.4 0.5-1.5 2.2-3.2 1.7-2.7 4.3 2.7-3.2 2.2-2.7 2.2-2.7 5.1 3.3-3.7 1.7-2.2 1.7-2.2 Imports 17.4 7.4-7.9 4.7-5.2 5.3-5.8 Money supply in national definition 10.5 10-13 8-11 8-11 Lending to non-financial organisations and households in rubles and foreign currency 8.2 10-13 7-11 7-12 - lending to non-financial and financial organisations in rubles and foreign currency - lending to households in rubles and foreign currency 7.1 9-11 6-9 6-10 12 13-18 10-13 10-13 *As presented in Monetary Policy Report No. 6 (June 2018) Source: Bank of Russia#20Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation ECONOMIC FORECASTS (2) Baseline scenario*: medium-term outlook for the Russian economy 2017 Baseline* USD billions (estimate) 2018 2019 2020 Current account: Trade balance Exports Imports Balance of services Exports Imports Balance of primary and secondary income Capital account 35 85 47 32 115 166 129 115 353 425 390 384 -238 -259 -261 -269 -31 -31 -31 -31 58 58 65 66 69 -89 -96 -97 -100 -50 -51 -52 -49 0 0 0 0 Current account and capital account surplus 35 85 47 32 Financial transactions account (reserve assets excluded) -16 -26 -12 -8 Public administration and central banks 13 4 3 4 Private sector (net errors and omissions included) -29 -30 -16 -12 Net errors and omissions 4 0 0 0 Change in FX reserves (+ is for decrease, - is for growth) -23 -60 -35 -24 *As presented in Monetary Policy Report No. 6 (June 2018) Source: Bank of Russia 20#21Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation 21 21 INFLATION EXPECTATIONS Inflation expectations are at historical lows but their decline has yet to become sustainable and consistent Expectations horizon Inflation expectations (absolute value), % I. 2016 II.2016 III.2016 IV.2016 I.2017 II.2017 III.2017 IV.2017 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Households FOM Next 12 months 14.7 14.2 14.2 12,4 11.2 10.3 9.6 8.7 8.9 8.4 8.5 7.8 8.6 9.8 9.7 FOM (Bank of Russia calculations) Next 12 months 7.4 6.7 5.9 5.1 4.0 4.0 2.8 2.4 2.1 2.1 2.2 2.2 2.2 2.4 Professional analysts Bloomberg 2018 Interfax 2018 Reuters 2018 4.0 4.0 4,0 4.0 4.2 4.1 4.1 3.9 4.1 4.0 4.1 33 3.8 3.8 800 00 3.8 3.8 3.8 m m m 3.6 3.7 608 343 3.6 3.7 3.8 4.0 3.8 3.8 3.6 3.8 3.7 3.5 Financial markets OFZ IN (option not Next 5 years 6.9 6.0 5.3 5.4 4.9 4.7 4.3 4.1 4.1 4.0 3.9 4.2 43 223 4.5 subtracted) Bond market Next quarter 12.0 6.9 7.2 6.6 5.2 4.4 4.5 Interbank market Next quarter 9.9 5.3 5.4 5.6 4.6 3.7 3.4 54 3.1 2.7 2.3 1.9 Inflation expectations (balanced index*) Households FOM Next 12 months 84 78 82 80 79 80 FOM Next month 72 68 70 76 68 68 23 82 78 78 75 74 76 76 79 73 73 69 61 62 63 63 71 Предприятия REB Next 3 months 14 38 36 46 22 20 14 52 22 24 32 0 Bank of Russia Next 3 months 13.6 12.2 11.3 9.4 7.4 9.5 7.2 7.2 6.4 6.8 8.5 10.0 10.4 11.4 Retail prices (Rosstat) Next quarter Tariffs (Rosstat) 32 29 28 27 27 24 24 24 24 Next quarter 5 5 0 0 4 3 0 20 22 Change against 3 previous months: - Inflation expectations become better (more than 1 standard deviation) - Inflation expectations become better (less than 1 standard deviation) - Inflation expectations unchanged (±0,2 standard deviations) - Inflation expectations become worse (less than 1 standard deviation) - Inflation expectations become worse (more than 1 standard deviation) *Balanced index is the difference between the shares of those who expect prices to rise and to fall 20 5 250#22Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation 22 22 MONETARY POLICY Gradual transition from moderately tight to neutral monetary policy Inflation and inflation expectations • • • Annual inflation remains low and in general corresponds to the Bank of Russia's expectations, but shows mixed dynamics for main consumer basket products (petrol 1, food goods ↓) A majority of annual inflation indicators reflecting the most sustainable price movements suggests that inflation is gradually returning to the target Petrol price movements affected inflation expectations which continued to rise in June Annual inflation will temporarily overshoot 4% in 2019 due to the planned increase of the value added tax Monetary Conditions are close to neutral Economic activity • The updated Rosstat data reflects steadier economic growth in 2017 - early 2018 than previous estimates . Medium-term outlook on economic growth is at large the same, but might be further updated to reflect a detailed estimate of influence of the set of the proposed fiscal measures Decision as of July 27, 2018 The Bank of Russia keeps the key rate at 7.25% p.a. Signal "...In making its key rate decisions the Bank of Russia will assess inflation risks, inflation dynamics and economic developments against the forecast. The Bank of Russia considers that monetary policy is highly likely to shift to a neutral stance in 2019..." • Inflation risks The main risks: (1) the scale of secondary effects of the adopted tax decisions, (2) external factors Moderate risks – estimates are mostly unchanged: (3) consumer and oil price volatility, (4) wage movements, (5) possible changes in consumer behavior.#23Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation 23 FINANCIAL STABILITY Macroprudential policy aimed at Identifying and preventing potential systemic risks Credit activity As the pace of recovery remains inconsistent across lending segments in Russia, credit-to-GDP gap for both corporate and retail lending (a difference between the actual credit-to-GDP ratio adjusted to currency revaluation, and the long-run trend) is still estimated as negative. This shows that lending remains below the long-term trend. Retail lending risks The CBR recent measures to limit the systemic risks of non-collateralised consumer lending and support high standards in mortgage lending have yet to make impact on banks' lending activity. Non-collateralised consumer loans grow at a high pace (15.7% YoY as of June 1, 2018). Reduced interest rates in cash loans can boost overall segment growth even further. The CBR increased risk weight for consumer credits bearing an FCC of 15-25% to be issued after 1 May 2018; the efficiency of this measure will be assessed upon the results of the Q2/18. Mortgage loans grow at a steady rate, however, borrowers' debt burden remaining at the same level show that the current growth does not present any significant risk to the financial stability. The Bank of Russia aims to prevent the build-up of risks related to loans with a high loan-to-value ratio and secure sustainable development of the mortgage lending segment. Capital adequacy The capital adequacy ratio (Basel III N1.0 ratio) for the banking sector overall decreased over 12 months from 13.3% to 12.8% as of June 1, 2018. Decision The Bank of Russia keeps the countercyclical capital buffer rate for Russian credit institutions at 0% of risk-weighted assets as of July 4, 2018. Rising risk weights for specific credit requirements results in banks increasing their capital reserves to cover potential losses. Therefore considering the uneven recovery of lending, there is no need for a positive countercyclical buffer for credit institutions yet.#24Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation 24 24 FINANCIAL STABILITY: FOREIGN CURRENCY LIQUIDITY In Q2/2018 the high current account surplus supported FX market stability Figure 10: Spreads between FX swaps implied interest rates and interbank interest rates in internal and external markets have not widened (1 month, bps) Figure 11: In January-June 2018 the current account surplus amounted to USD 53.2 bn (est.) thanks to favourable international prices for major Russia's export goods 100 50 0 -50 -100 -150 -200 -250 -300 01.12 15.12 29.12 12.01 JPY EUR RUB 26.01 09.02 23.02 09.03 23.03 06.04 20.04 04.05 18.05 01.06 15.06 Source: Bank of Russia 60 60 50 40 40 30 20 20 10 22 30.8 2017 2018 23.9 53.2 0 Q1 Q2 22#25Bank of Russia The Central Bank of the Russian Federation FINANCIAL SECTOR OVERVIEW#26Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation BANKING SECTOR: CURRENT AGENDA Shaping a favourable operating environment and supporting market competition Proportional banking regulation: differentiating regulatory burden for banks based on their size and simplifying requirements for smaller banks focused on retail and SME lending Consulting supervision: aiming to remedy problematic situations in banks at an early stage New resolution mechanism: reducing financial costs and execution period of the resolution procedure Development of macroprudential regulation: streamlining the regulation, introducing countercyclical approach Imminent introduction of PTI ratio in order to affect the consumer lending market more efficiently New regulations to the credit history bureau: entrusting several strategic credit bureaus with the function of aggregating information on debt payments Development of banking supervision: introduction of the Basel Committee on Banking Supervision (BCBS) standard on capital requirements for banks' equity investment in funds (since December 16, 2017) Basel III in force: Leverage ratio (except for banks with basic license), NSFR - for D-SIBS 26#27Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation BANKING SECTOR: NEW RESOLUTION MECHANISM Under new mechanism both costs of resolution and time required have been reduced significantly RUB 2.6 tn have been provided to three banking groups + RUB 758.3 bn for additional capitalization RUB1.86 tn for liquidity (deposits) List of banks Otkritie Bank B&N Bank Promsvyazbank PJSC National Bank TRUST ROST BANK Bank AVB PJSC "Asian-Pacific Bank" Additional RUB 199 bn RUB 156.1 bn for the establishment of BNA* RUB 42.7 bn for additional capitalization of Otkritie Bank * BNA - Bank of non-core assets based on NB TRUST, ROST BANK and Bank AVB 27#28Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 28 BANKING SECTOR: KEY FIGURES (1) Active supervision and tighter regulation allowed to strengthen the health of the banking sector Figure 12: In 2013-2017 more than 300 licenses were revoked causing almost no impact on the banking sector's total assets Figure 13: Mortgage lending remains key growth driver amid falling rates Number of credit institutions, Ihs ― Banking sector assets, RUB tn, rhs Mortgage lending to GDP ratio, %, Ihs Average weighted interest rate, %, rhs 1200 86.6 96 7.0 14.0 978 800 1000 600 41.6 HIT 80 6.0 13.0 11.9 6.1* 64 5.0 12.0 524 48 4.0 11.0 400 200 0 2011 2012 2013 2014 2015 2016 2017 1H 2018 32 3.0 10.0 16 9.6 2.0 9.0 2.2 * Estimated as of August 20, 2018 1.0 8.0 2011 2012 2013 2014 2015 2016 2017 1H 2018 Figure 14: In June 2018 corporate deposits grew by 3.6% YoY to RUB 25.5 tn Figure 15: In June 2018 retail deposits demonstrated growth by 8.8%, reaching RUB 26.9 tn Corporate deposits, RUB tn, Ihs Retail deposits, RUB tn, Ihs YoY (ccy adj., by credit institutions operating as of the reporting date) rhs YoY (ccy adj., by credit institutions operating as of the reporting date) rhs 27.0 30.0 20% 27.0 30% 28.0 27.1 15% 25.5 25% 25.5 23.2 26.0 10% 24.0 20% 24.0 5% 22.5 8.8% 15% 19.2% 22.0 3.8% 3.6% 0% 21.0 10% 20.0 -5% 19.5 5% 18.0 -10% 18.0 0% 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 Source: Bank of Russia#29The Central Bank of the Russian Federation Bank of Russia FINANCIAL SECTOR OVERVIEW BANKING SECTOR: KEY FIGURES (2) Active supervision and tighter regulation allowed to strengthen the health of the banking sector Figure 16: Corporate lending has stabilized and shows early signs of recovery Figure 17: Retail loans remain the key driver of credit growth I Corporate loans, RUB tn, Ihs Retail loans, RUB tn, lhs YoY (ccy adj., by credit institutions operating as of the reporting date) rhs YoY (ccy adj., by credit institutions operating as of the reporting date) rhs 13.3 35.5 34.0 33.3 32.5 31.0 4.1% 29.5 30% 13.5 20% 13.0 20% 15% 31.4 12.5 10% 10% 12.0 19.2% 0% 11.5 5% 10.7 4.5% 11.0 -10% 0% 10.5 28.0 -20% 10.0 -5% -5.3% 26.5 -30% 9.5 -10% 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 14.0% 94.5% 12.0% 10.0% 7.2% 8.0% 6.0% 4.0% 2.0% 12.14 03.15 06.15 Figure 18: Share of bad corporate loans* reached 12.7% (01.07.18) while loan loss reserves to bad loans ratio amounted to 82.9% Share of bad loans, %, lhs Loan loss reserves to bad loans ratio, %, rhs Figure 19: Retail loans portfolio demonstrates improved quality: the share of bad loans* fell to 8.8% (01.07.18) 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 I Share of bad loans, %, lhs 12.7% 95.0% 14.0% 92.5% 13.0% 90.0% 12.0% 87.5% 11.0% 82.9% 9.9% 85.0% 10.0% 97.1% 82.5% 9.0% 80.0% 8.0% 03.18 06.18 * Loans classified into quality category of IV and V according to the requirements of Regulation No.590-P2. Quality category IV - high credit risk (probability of financial losses due to non-performance or improper performance of obligations by the borrower requires its depreciation by 51 to 100 per cent); Quality category V - no possibility of loan repayment due to the borrower's inability or refusal to meet loan commitments, which requires complete (100 per cent) depreciation of the loan. Source: Bank of Russia Loan loss reserves to bad loans ratio, %, rhs 107.9% 109.0% 106.5% 104.0% 101.5% 99.0% 8.8% 96.5% 94.0% 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 29#30Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 30 BANKING SECTOR: CAPITAL ADEQUACY High quality capital base and solid capital adequacy levels under Basel III standards Figure 20: Capital adequacy ratio for the banking sector decreased over from 13.1% (01.01.17) to 12.2% (01.07.18) mostly due to the procedures of financial rehabilitation of the large credit institutions 16 Figure 21: Credit organizations with capital exceeding RUB 25 bn have lower buffer vs N1.0 minimum requirement due to economies of scale 14 8 891 12 12,9 10 8,9 №98 6 4 2 8,7 10 000 50 9 512 b000 45 12,2 8 000 40 7 000 35 9,0 6 000 5 000 RUB bn % 30 26.3 25.0 25 4.000 20 8,5 3 000 15 2000 10 10 1000 5 20.4 19.5 16.3 16.4 14.0 13.6 12,2 0 0 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 Ratio of own funds (capital) to risk-weighted assets (Basel III N1.0 ratio) Tier I capital ratio (N1.2) less than 300 mln rub 300-1 bln rub 1-10 bln rub 10-25 bln rub 25-50 bln rub 50 100 100-250 bln rub bln rub more than 250 bln rub Common equity Tier I capital ratio (N1.1) Own funds (Basel III capital), RUB bn, rhs Capital adequacy ratio N1.0 (by capital size) Capital adequacy ratio N1.0 as of 1.01.2018 (12,1%) Source: Bank of Russia#31Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 31 MICROFINANCE Microfinance is a vital part of financial system complementing banks to provide better financial inclusion MFIS ✓ Microfinance organizations (MFOS) ✓ Consumer credit cooperatives ✓ Credit Housing communities ✓ Pawnbrokers ✓ Agricultural credit cooperatives Microfinance institutions (MFIs) provide financial services for customers with no access to banking products, service regions with an insufficient bank presence, offer financial products missing from bank product lines, boost financial awareness and help clients build their credit histories. CBR keeps a state register of MFIs and supervises MFIs directly and via SROs. Currently there are about 15 600 MFI companies. Roughly 25% of the entire MFO microloan portfolio are microloans to small to medium enterprises (bearing 8% interest rate thanks to state support via MFOs). Payday Loans, i.e. small, short-term unsecured loans (up to RUB 30k for 30 days) at high rates, are not a development priority and account for some 20% of the entire MFO microloan portfolio.#32Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation SECURITIES MARKET (1) Russia's financial market has been aligned with best international practices 32 Crisis-proven market infrastructure • • • MICEX and RTS merged into the Moscow Exchange Establishment of a Central Securities Depository and unification of CCP across all asset classes T+2 settlement on equities, T+1 on OFZS, T+0 on corporate bonds Simplified market access • . . Euroclear and Clearstream settlement for equities and bonds; Unified collateral pool for equities, bonds and FX markets International clearing system membership; Direct access to FX trading for large corporates Local investor base development (individual investment account system, tax incentives, etc.) [D] Upgraded corporate governance Creation of a two-tier Quotation List within the stock exchange listing Strong criteria for inclusion in the top-tier Quotation list Streamlined dividend rules for SOES Corporate standards aligned with best international practices • ☑ Increased transparency • • Mandatory audited IFRS for all public companies Strengthened regulation to prevent market manipulation and insider trading • Improved disclosure practices • Report on Corporate Governance Code • compliance in the annual report Requirement to have a written description of dividend policy for the top-tier Quotation list Establishing of a Listing Committee at MOEX • Development of basic standards for professional market participants activities#33The Central Bank of the Russian Federation Bank of Russia FINANCIAL SECTOR OVERVIEW SECURITIES MARKET (2) Russian equity market remains undervalued despite strong performance in recent years Figure 22: Russian MSCI index vs EM peers (05.01.15 = 100%) EM EMEA -China India Russia Brazil Turkey South Africa 9 175% 150% 125% 100% 75% 50% 25% 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 Source: Thomson Reuters, Moscow Exchange 06.17 09.17 12.17 03.18 06.18 3 4 5 6 7 8 Figure 23: Forward P/E ratio of just 5.7x and a dividend yield above 5.5% 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 Forward P/E, Ihs -Div/Yield, rhs 6 12.16 03.17 06.17 09.17 12.17 03.18 06.18 3 4 3.5 5 4.5 5.5 33#34Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation SECURITIES MARKET (3) Equity market provides strong growth potential Figures 24-26: Equities market volume breakdown by investor types as of August 1, 2018 40% 4% 2013 10% 11% 34% Local funds Local retail investors Local banks and brokers Local corporates ■Foreign investors 2% 48% 2017 Figure 27: Russian equities market volume proves stable (RUB tn) Trading volumes, RUB tn, Ihs MOEX Index, rhs 3 2.5 2.5 2 1.5 1 0.5 1.664 0 01.15 01.16 04.16 07.16 10.16 01.17 04.17 2% 36% 8% 5% 48% 6M' 2018 9% 5% 35% Figure 28: Domestic market capitalization to GDP ratio reflects undervalued Russian financial market (of GDP, %) 2016 2017 180 2.6 2.350 Total value in 2017 = USD 619 bn 150 Hi 2.200 2.275 120 2.050 90 1.900 60 48.5 39.0 1.750 30 1.600 07.17 10.17 01.18 0 UK Japan Korea US China Russia Euro area Source: Thomson Reuters, Moscow Exchange, International Monetary Fund and World Federation of Exchanges 34#35Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 35 SECURITIES MARKET (4) Growing a deeper Russian bond market with strong potential Figure 30: Debt market volume breakdown by investor type Figure 29: Russian debt market volume (outstanding) keeps growing OFZ, RUB tn Corporate Bonds, RUB tn Local funds Local retail investors Local banks and brokers Local corporates Foreign investors 24 20 16 12 7.9 8 4 5.2 0 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 18% 9% 11.7 63% 18% 12% 17% 12% 55% 54% 7.6 4% 2% 8% 11% 2013 2016 7% 11% 2017 Figure 31: Bond market yields, key rate and RUONIA (%) Figure 32: EM 10Y bond yields on the background of credit ratings 30 25 Cbonds-CBI RU BBB/ruAA- YTM eff 8.5 Cbonds-GBI RU YTM eff RUONIA Index 7.5 Turkey 6.5 20 20 Brazil 5.5 Russia Indonesia 15 SoA Mexico 4.5 Kazakhstan Malaysia Chile 10 Korea 3.5 Philippines Peru Hungary Poland China 5 2.5 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 BB- BB BB+ BBB- BBB BBB+ A- A A+ AA- AA AA+ AAA Source: Thomson Reuters, Moscow Exchange, IMF and World Federation of Exchanges#36Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation SECURITIES MARKET (5) In April-June 2018 non-residents share in the OFZS reduced from 34.5% (01.04) to 27.6% (29.06) Figure 33: Since June 14, 2018 there was a shift up in the OFZ yield curve (by 27 bps on average, %) Figure 34: Non-residents' holdings of OFZS (%) Spread 14.06.2018 - 28.06.2018, bps, rhs 06.04.18 10.04.18 14.06.18 28.06.18 8.1 7.7 7.3 6.9 6.5 יון!! 36 33.1 30 50 10 40 24 30 18 20 12 10 6 36 28.2 6.1 0 1 2 3 5 7 10 15 0 Years to maturity 01.18 02.18 03.18 04.18 05.18 06.18 07.18 Source: Bank of Russia, National Settlement Depository#37Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation SECURITIES MARKET (6) In April-June 2018 non-residents share in the OFZs reduced from 34.5% (01.04) to 27.6% (29.06) Figure 35: Russian Government Zero Coupon Yield Curve (%) Figure 36: OFZ placement dynamics in 2018 (RUB bn) 03.01.2018 9.50 8.75 8.00 7.25 6.50 02.04.2018 02.07.2018 5.75 0.25 0.5 0.75 1 2 3 5 7 10 10 Years to maturity Source: Bank of Russia 03.08.2018 70 0 60 60 50 40 30 20 10 15 20 30 0 | Foreign bank subsidiaries Non-residents Systemically-important credit institutions | Non-credit financial institutions Other banks Activity ratio, rhs 10.01 17.01 24.01 31.01 07.02 14.02 21.02 28.02 07.03 14.03 21.03 28.03 04.04 18.04 25.04 16.05 23.05 30.05 90 90 13.06 20.06 37 7 6 5 4 3 2 1 0#38Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 38 SECURITIES MARKET (7) Growing a deeper Russian bond market with strong potential Figure 37: Ageing fixed assets require long-term investments Accumulated depreciation as % of fixed assets Figure 38: Breakdown of bond issuers by industry, as of August 1, 2018 45.3 45.3 49.4 48.2 47.9 47.7 47.1 12% Banks and financial institutions 4% 27% Finance 48.1 47.7 5% 5% 6% Municipal Construction and development Transportation 2008 2009 2010 2011 2012 2013 2014 2015 2016 21% Utilities 20% Other Figure 39: Corporate loans vs corporate bonds in Russia (RUB tn) Figure 40: "Bondization" of Russian financial market Loans (incl. foreign debt) Corporate bonds (incl. eurobonds) Equities market trading volume, RUB trln Fixed income market trading volume, RUB trln 90.0 18 16.5 RUB 64.7 tn 15.3 75.0 15 60.0 27% RUB 29.2 tn 29% 12 9.2 45.0 23% 8.7 20% 9 19% 30.0 73% 71% 6 77% 15.0 81% 80% 3 2009 2011 2013 2015 2017 0 2013 2014 2015 2016 2017 Source: Thomson Reuters, Moscow Exchange#39Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation SECURITIES MARKET (8) Moscow Exchange group offers the best infrastructure in its class TRADING CLEARING SETTLEMENT Source: Moscow Exchange 39 Moscow Exchange listing and electronic trading, including DMA services National Clearing Centre CCP, risk and collateral management, clearing, risk netting National Settlement Depository CSD, settlement, depository, safekeeping, repository ✓ MOEX captures the entire value chain for end- customers, offering a one-stop shop for listing, risk management, market data, multi-asset trading, clearing settlement and custody ✓ MOEX is strategically positioned to benefit from the development of Russia's capital markets in the coming years ✓ Fully vertically integrated infrastructure with regulation and oversight by the Bank of Russia ✓ Eligible collateral to trade any asset class ✓ Foreign investors have DMA and ICM services at their disposal#40Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 40 40 SECURITIES MARKET (9) Russian financial market has necessary infrastructure and regulation for trading OTC Robust legal protection in place Enforceability of close-out netting in derivatives and repo markets is confirmed by relevant legal opinions (ISDA, ICMA) ✓ Russian standard documentation developed by SROs and approved by the Bank of Russia Russia adheres to G20 decisions in respect of OTC derivatives reforms ✓ Trade reporting to repositories (two authorized repositories available) ✓ National Clearing Centre provides clearing services for OTC trades Variety of instruments and service providers Non-financial counterparties have access to a broad range of hedging. instruments offered by banks (including structured products) ✓ National Settlement Depository provides collateral management services (repo)#41Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 41 44 SECURITIES MARKET (10) Rapidly developing retail market with strong tax incentives and accelerating FinTech ✓ 1.2 million retail investors were registered with the Moscow Exchange at the end of 1H 2017 ✓ Around 90 000 retail investors were reported as "active" traders Figure 41: Number of active retail client accounts Equities market Derivatives market FX market 109 538 Recent regulatory changes Individual Investment Accounts for private investors since 2015. RUB 1 mln max sum to invest in a year Tax deductions for IIA type A - max RUB 52 000; for IIA type B - at the rate of investment income 57 946 78 639 74 911 46 285 44 860 34 196 28 068 895 8 038 25 461 15 159 December 2013 December 2014 December 2015 December 2017 Source: Moscow Exchange Corporate bonds with yield of under 12.75% became tax-exempt on January 1, 2018 Capital gains on securities held for more than 3 years are tax-exempt Retail investors allowed to open brokerage and management accounts online#42Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 42 42 CORPORATE GOVERNANCE New corporate governance standards reflect best international practices Listing reform on Moscow Exchange Simplified listing structure: 2 quotation lists and 1 non-quotation list instead of a 6-tier system ✓ Stricter corporate governance criteria for inclusion in the top-tier list Stricter requirements for Directors to be considered independent Next stage 2018 Only ratings by approved Russian rating agencies will be considered valid for listing requirements for Russian issuers` bonds Corporate actions reform Information on corporate actions cascaded to shareholders from issuer through CSD and nominees ✓ E-proxy voting and E-voting platform for shareholders has been developed ✓ A number of Russian companies have already implemented an online voting system in 2017 has been ✓ E-voting for bondholders implemented and successfully tested Blockchain technology NSD used a blockchain-based settlement platform to complete an inaugural placement of a RUB 500 mln bond issue in 2017 CBR corporate governance report: annual monitoring of corporate governance practice and publication of the report on the CBR official site (only in Russian)#43Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation COUNTERING MALPRACTICE Bank of Russia supervises conduct of financial market participants to promote fair competition • Bank of Russia has implemented an effective system for countering malpractice including market manipulation and insider trading, aimed at ensuring investors' equality and fair pricing. •In 2015 Bank of Russia became a signatory to the IOSCO MMOU •Intense cooperation with foreign financial market regulators in terms of information exchange, including confidential information •Elaboration on international initiatives Insider trading and market International cooperation manipulation C • Bank of Russia successfully eliminates competitive advantages of unlicensed firms by decreasing their number. Since 2015 detriment caused by financial pyramids decreased by more than 5x times Unlicensed firms and Pyramid Scheme Enhanced consolidated market analysis •Bank of Russia improves continuous monitoring of on-exchange trading for the purpose of maintaining financial stability and preventing system shocks caused by misconduct 43 33#44Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation INSURANCE Risk-oriented supervision is to be exercised in compliance with the Solvency II standards Figure 42: Premium volume is gradually growing (=USD 2.5 bn) Premiums, RUB bn, lhs Premiums as % of GDP, rhs Payment of claims, RUB bn, Ihs Figure 43: Assets and reserves hit 2.6% of GDP Assets, RUB bn, Ihs Assets as % of GDP, rhs Reserves, RUB bn, Ihs 360 300 266.4 240 1.3 180 2600 113 H 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 316.4 1.5 2 700 1.4 2 250 1 609.4 1.4 1.3 1 800 1.3 1 350 2.0 1.2 900 114 1.2 450 943.3 1.1 0 09.17 12.17 Figure 44: Premium structure shows high level of market diversification, as of YE17 30% 26% 13% 11% 13% Source: Bank of Russia 7% Life insurance Corporate property insurance Private medical insurance ■Motor car insurance ■Compulsory motor TPL insurance 2.6 2.8 2.5 2 429.7 2.3 2.0 1 448.5 1.8 1.5 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 Figure 45: In Q4/2017 market remained highly competitive with the Herfindahl-Hirschman Index equal to 507.2 ■Capital, % ■Premiums, % Assets, % Top-20 Top-10 0 10 20 20 30 40 40 50 60 65 65.3 61.5 74.7 79.8 74.2 70 70 80 90 #4 44#45Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation NON-STATE PENSION FUNDS Bank of Russia aims to strengthen local institutional investor base: non-state pension funds Non-government pension system has gone Figure 46: Pension assets in Russia (RUB tn) through a number of changes: 5 45 ✓ 'one-year non-loss' rule was extended to 'five- year non-loss' rule ✓ stress-testing mechanism introduced ✓ customers are now encouraged to stay with the same fund for not less than 5 years ✓ since 2014 the Deposit Insurance Agency (DIA) guarantees the nominal value of mandatory savings ✓ non-state pension funds are to bear fiduciary responsibility (since March 18, 2018) ✓ non-state pension funds are to disclose their investment portfolios Non-state pension funds. Corporate savings Non-state pension funds. Mandatory savings State pension fund. Mandatory savings 1.11 1.21 0.99 0.83 0.90 1.71 2.15 2.47 1.09 1.13 1.90 1.94 2.06 2.02 1.91 2013 2014 2015 2016 2017 Figure 47: Pension system asset allocation (as of December 31, 2017, %) Cash Equities Corporate bonds Government bonds Other Source: Bank of Russia 4% 4% 21% 24% 38% 12% 48% 35% 37% 0% 21% 20% 13% 11% 12% State pension fund NPFs. Mandatory savings NPFs. Corporate savings#46Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation INVESTMENT FUNDS Bank of Russia aims to strengthen local institutional investor base: investment funds Figure 48: Number of investment funds by types and assets to GDP Figure 49: Breakdown of assets by type (as of April 1, 2018) 1800 Closed-end IF, Ihs Interval IF, Ihs Opened-end IF, Ihs Assets to GDP (%), rhs 3.7 1600 46 47 3.6 3.6 36 37 3.6 43 39 43 1400 353 356 3.5 332 331 327 325 3.5 1200 1000 800 600 3.2 400 3.3 3.3 1135 1150 1131 1132 1136 200 3.4 3.4 ■Cash ■ Equities ■ Bonds ■Government bonds Foreign securities ■ Real estate ■Authorized capital Other 18% 3.3 1131 1117 3.2 3.1 15% 9% 19% 1% 4% 6% 46 46 0 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018 3 28% Total assets USD 58.8 bn Bank of Russia Regulation No. 572-P came into force in August 2017 and regulated activities on shareholders' roster management. Source: Bank of Russia#47Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 47 17 COMMODITIES Urals futures trading launched to set a price benchmark for Russian export oil ✓ Deliverable SPIMEX Urals Crude Futures contract is a new oil pricing mechanism allowing a direct quotation of exported Russian oil without reference to other crude oil grades traded on global energy markets ✓ Transparent pricing process is based on exchange-traded futures contracts reflecting the supply-and-demand equilibrium reached on the back of a large number of trades concluded on the exchange by a wide range of market participants and setting an arm's length price for the relevant commodity ✓ Deliverable SPIMEX Urals Crude Futures contract trading was launched on 29 November 2016 ✓ Access to the SPIMEX futures contract trades is granted to Russian and foreign legal entities as well as to Russian individual entrepreneurs. Only legal entities (both Russian residents and non-residents) are able to conduct physical deliveries of crude oil ✓ The SPIMEX Urals Crude Futures contract is settled by physical delivery upon expiration. Such a futures contract has a direct link with the crude oil spot market and prevents price manipulation. Physical delivery of crude oil under the contract is effected against positions opened as of the relevant contract expiration date#48The Central Bank of the Russian Federation Bank of Russia FINANCIAL SECTOR OVERVIEW PAYMENT INFRASTRUCTURE (1) Bank of Russia Payment System ✓ Money transfer services are provided to: ✓ all credit institutions (financial market infrastructure included) ✓ Russia's Federal Treasury and its agencies ✓ other Bank of Russia clients ✓ Average daily figures: 6 mln payments, RUB 5.6 tn ✓ Real-time and non-real-time payments provided through the RTGS system with 80% of the funds transferred via the real-time service ✓ Providing tools for completing financial market infrastructure settlements in the Central Bank (RUB accounts) ✓ Transfer timeframe is adapted to Russia's 11 time zones. In near future it will operate from 1 a.m. to 9 p.m., Moscow time ✓ Providing settlement services and intraday settlements on fund transfers conducted within Russia through payment cards (in collaboration with NSPK - the National Payment Card System) 48 48#49Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation PAYMENT INFRASTRUCTURE (2) Advancing supervision and oversight to ensure stable development of the payment infrastructure Figures for early 2018: 49 49 ✓ Supervision of the payment infrastructure: monitoring organisations' compliance with the Russian law. Applies both to banking and non-banking. providing institutions payment infrastructure and payment services ✓ Oversight of the payment infrastructure: 32 payment systems and 550 institutions supervised within the National Payment System (NPS) NPS supervision is risk-oriented. Proportionate remote supervision approach is being introduced to the NPS improving institutions' following the Bank of recommendations based operations Russia upon Objects supervised for compliance with CPMI/IOSCO Principles for Financial Market Infrastructure (PFMI): 2 systemically important payment systems, 4 socially important payment systems international best practices ✓ Bank of Russia international cooperation in supervision and oversight of the payment infrastructure High PFMI compliance ratings. NPS operators implement approved action plans based on the Bank of Russia recommendations#50Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation NATIONAL PAYMENT CARDS SYSTEM Setting the standards for the payment industry to provide convenient and stable services 50 NSPK NATIONAL PAYMENT CARDS SYSTEM MIR ✓ Russian national payment system "Mir" was created on 23 July 2014 ✓ Operator of Mir Card Payment System is National Card Payment System Joint-Stock Company, 100% of its shares belong to the Bank of Russia ✓ Strong authentication MirAccept at online payment is provided ✓ 1.0 3D-Secure standards and technologies have been developed and implemented ✓ Co-badging projects with international payment systems: Maestro, JCB, AmEx and UnionPay ✓ Support of mobile payment service Samsung Pay ✓ PayPass system has been successfully implemented ✓ Payment system "Mir" launched a loyalty program which allows card holders to receive cashback ✓ More than 30 mln "Mir" payment cards were issued by year end 2017 in Russia#51Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation CONSUMER PROTECTION Financial consumer and investor protection as one of priorities for 2016-2018 KEY FINANCIAL CONSUMER PROTECTION WORKSTREAMS ● ● ● ● Consumer and investor complaints handling 3 Differentiation of consumer protection requirements Conduct supervision model Setting requirements for financial organizations in order to improve consumer and investor protection Dispute resolution (ombudsman) ווין Financial awareness improvement Disclosure requirements for consumers and investors Disclosure requirements for information on risks 51#52Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 52 42 FINANCIAL INCLUSION Strong international background helps to promote financial inclusion - G20 GLOBAL PARTNERSHIP FOR FINANCIAL INCLUSION (GPFI) Acts as an inclusive platform for G20 countries, non-members and other parties for knowledge and experience sharing, policy advocacy and coordination in promoting financial inclusion - Russia is an original GPFI member since November 2010 Endorsed the 'original' FIAP in 2010 and the 'updated' FIAP in 2014 and 2017 - G20 World Bank · - OECD conference on empowering consumers of financial products and services was hosted in Moscow in June 2013 The third annual GPFI Forum was held in St. Petersburg in 2013 Financial Inclusion Promotion by the Bank of Russia - Improving financial inclusion for people and SMEs is one of financial market development priorities for 2016-2018 - - The Bank of Russia annually publishes financial inclusion indicators and the Report on Financial Inclusion in Russia (with supply-side and demand-side data starting from 2015) The technical note on financial inclusion was prepared in the context of a joint WB / IMF FSAP mission in Russia during February-March 2016; the note was published in May 2016 - Early in 2018 the Bank of Russia launched the Financial Inclusion Strategy in Russia for the period of 2018-2020 - ALLIANCE FOR FINANCIAL INCLUSION (AFI) The global knowledge exchange network empowering policymakers to increase access to quality financial services for the less well-off communities and households · The Bank of Russia became a member of AFI in February 2014 In September 2014 the Bank of Russia joined the Maya Declaration setting up the priorities for AFI members on financial inclusion In September 2015 the Bank of Russia joined the Maputo Accord to improve funding accessibility for SMES The Bank of Russia and AFI co-hosted the 'Financial inclusion and shadow banking: innovation and proportional regulation for balanced growth' conference in November 2015 In June 2016 the Bank of Russia hosted the AFI GSPWG meeting. CBR will host the 2018 AFI Global Policy Forum#53Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation AML/CFT Bank of Russia maintains AML/CFT supervision of credit and non-credit financial institutions Russian AML/CFT law is based on International Standards on Combating Money Laundering (FATF Recommendations) 53 2008 The FATF placed Russian Federation in the regular follow-up process 2013 The FATF recognized that Russia could be removed from the regular follow-up process Key measures taken in 2008-2013: 2018-2019 4th round of mutual evaluation, joint FATF/MONEYVAL/EAG evaluation of Russia ✓ Enhancing corporate transparency by introducing beneficial ownership requirements to the AML/CFT Law ✓ Prohibiting credit institutions from opening and maintaining anonymous accounts or accounts in fictitious names ✓ Addressing certain shortcomings in the criminalization of terrorist financing ✓ Amending legislation to prevent criminals from becoming major shareholders in financial institutions ✓ Strengthening instruments to freeze terrorist assets domestically or on request of other countries ✓ Abolishing the threshold which decriminalized self-laundering of amounts lower than RUB 6 mln and which was not in compliance with the FATF Recommendations Source: Financial Action Task Force#54Bank of Russia FINANCIAL SECTOR OVERVIEW The Central Bank of the Russian Federation 54 CYBERSECURITY Key initiatives in information security and cybersecurity 010101 001010 $ Countering international and cross- border crime Addressing the rise in money withdrawals via illegal cross-border transactions Compiling a general register of most typical cyber threats and computer attack methods Combatting fraud in financial e- services provided via websites registered in foreign DNS zones Key avenues of cooperation in the sphere of information security ✓ Establishing institutional and technical framework for dynamic cooperation between the common financial market regulators and participants, building upon the Financial Sector Computer Emergency Response Team (FinCERT) of the Bank of Russia ✓ Enabling trusted electronic operations in the increasingly digitalised common financial market Formulating unified standardised approaches to information security, cyber resilience and supervising related risks ✓ Policy coordination and unifying the mechanisms of strong customer authentication for financial transactions and money transfers#55Bank of Russia The Central Bank of the Russian Federation INVESTOR CONTACTS AND REGULAR MEETINGS SCHEDULE FOR 2018 55 January 30 February 2-9 Teleconference with institutional investors June 19 Quiet period Meeting with institutional investors (Moscow) + teleconference February 9 March 16-23 March 23 Board of Directors meeting on monetary policy Quiet period July 20-27 Quiet period July 27 Board of Directors meeting on monetary policy Release of the Monetary Policy Report September 7-14 September 14 Board of Directors meeting on monetary policy Quiet period Board of Directors meeting on monetary policy Release of the Monetary Policy Report March 27 Meeting with institutional investors (Moscow) + teleconference September 18 Teleconference with institutional investors April 18-19 Ad-hoc meetings with investors on the sidelines of the IMF/WB meetings October 12-14 Ad-hoc meetings with investors on the sidelines of the IMF/WB meetings October 19-26 April 20-27 April 27 May 24-26 Quiet period Board of Directors meeting on monetary policy October 26 December 7-14 Quiet period Board of Directors meeting on monetary policy Quiet period Saint Petersburg International Economic Forum December 14 June 6-8 June 8-15 XXVII International Financial Congress (Saint Petersburg) Quiet period June 15 Board of Directors meeting on monetary policy Release of the Monetary Policy Report Board of Directors meeting on monetary policy Release of the Monetary Policy Report International Cooperation Department Tel.: +7 (495) 987-71-31 Email: [email protected] Web-site: cbr.ru/eng/today/irp/