RECOMMENDATIONS OF THE INTERNATIONAL BANKING CONGRESS IBC-2000.

    Having discussed the role of banks in the economy and in the financial intermediation system, the International Banking Congress on "Banks: Challenges of the New Century" stresses that the objective process of economic and financial globalization and integration based upon the development of new technologies and increasing concentration of the financial and banking capital shapes the general trends common to the progress of the banking systems. Typical to some extent for Russian banks, these trends are tightening of competitive struggle both inside the banking system and between various financial intermediaries, development of the international banking aspects a greater role of the systemic risks, improvements in the bank management system including the risk management issues. In these conditions, of prime importance are the problems of stability and ongoing development of the banking system, prevention of widespread banking crises, a higher banking culture, and a better bank supervision.

    The Congress establishes that Russia has overcome the most painful phase of its financial, economic and banking crisis. The challenge of the next stage of the banking sector reform is creating conditions for the long-term stable development of the banking system, including the bank regulation system based upon internationally proven methods.

    The Congress points out that the set of measures required for the banking system reform is insufficient to restore the progress of banking. Consistent state policy aimed at restructuring the industry, more active investment activities, higher employment and effective consumers demand, and the financial system recovery are necessary. For reforming the economy and the banking sector, improvements in the legislative basis, regulating the rights of private property and their implementation as well as the bankruptcy procedure are important.

    Given the increasing globalization and interdependence of finance flows and the expanding influence of the international financing structures on the general nature of banking problems, restored confidence of worlds banking community and foreign investors are topical issues for Russia. A necessary condition for that is open economy and the banking sector, a friendly investment climate, and a stronger regulation of the banking system.

    Steps taken by the regulators to improve the quality of bank supervision, consolidated supervision of bank groups and holdings: control of the bank risk management, development of the competition environment based on greater transparency of the credit institutions and a stronger market discipline of the bank service market participants will have a substantial impact on the banking system development now and in the nearest future.

    A mechanism for insurance against political risks and other systemic risks in Russian transactions, including priority sectors of economy will also be significant.

    The Congress notes that the Interdepartmental coordination committee for promotion of the banking development in Russia involving participants from the Russian state bodies and international organizations will play a major role in the strengthening and development of the countrys banking system as well as a stronger presence of foreign capital in it. The IMF, World Bank, EBRD, OECD and other organizations have contributed significantly to the processes of restructuring of the Russian banking system and to openness of these processes for the international community.

   

It is recommended by the Congress to:

• take solely justified risks based upon careful analysis of all economic and legal aspects of the relevant transactions.
• ensure priority interaction with the real economy sector as follows:
  -  crediting of export-oriented and import-substituting industries;
  -  participating in high-tech development investment projects;
  -  developing retail credit operations (small and medium business, housing construction or mortgage and consumer credits);
  
• expanding syndicated loan practice for a more rational use of resources and bank risk reduction;
• building up capital through reduction of administrative and management costs attraction of strategic investors, including non-residents;
• analyzing the adequacy of bank capital to risks taken in the managerial decision making and assessing the capital needs on the basis of the best international practice;
• monitoring risks continuously, setting up efficient internal control systems, avoiding uncontrolled decisions on banking and economic operations;
• strengthening mutual trust to restore the interbank market;
• using actively recommendations of Basle Committee for bank supervision to improve the risk management quality and advanced methods of risk management used in international banking practice including economical and statistical probability estimates of unfavourable events.
• setting up reserves for losses on loans and those for doubtful assets not less than required by the Bank of Russia for adequate financial rating;
• analyzing and considering the macroeconomic trends in the services and capital marketdevelipment including their world aspects in the strategy development and decision making, analyzing the competitive environment by the methods used in international banking practice;
• increasing substantially the requisite transparency level of banking, credibility of accounting, reporting and information submitted to partners, customers, regulators and oversight bodies on the bank financial position;
• concentrating more attention on upgrading the professional and ethical level of the bank personnel.

• refinancing of banks for the real economy sector crediting through bill guarantees for first class borrowers;
• continuing the work on introduction of fundamental principles of effective bank supervision and basis principles of the Basle Committee (minimum requirements on capital adequacy, supervisory estimate and market discipline);
• changing over the supervision activities from formal compliance with prudential standards to the supervision based on risk content, when the compliance analysis is requisite but insufficient, and focusing the credit institutions on the risk management process;
• interacting with the Russian Federations Government to make specific provisions to upgrade the accounting and credibility of the bank information based on transition of the economy and banking system to IAS;
• improving the internal control methodology and auditing of credit institutions to comply with international standards;
• upgrading the bank supervision system along the following basic lines::
  - upgrading the quality of the bank financial position analysis and developing a system for advance warning of problems at credit institutions, including analysis of reporting and targeted financial verification;
  - developing the methods and practice of consolidated supervision;
  - considering prudential standards in use with a view to place requirements for compliance of banks with the relevant parameters;
  - developing the approaches to assessing the quality of bank risk management;
  - developing requirements for setting up bank reserves for losses, if any, based on fundamenal approaches used in international banking, with allocations to reserve determined by the bank on the basis of a motivated judgement on the risk level and subsequent control by a supervisory body;
  - remaking the bank reporting system in order to reduce substantially its volume and making it more informative;
  - introducing amendments into the bank regulations for more stringent requirements of the Bank of Russia on the bank owners and presidents for a refusal to register or revoke their licenses;
  - working out and approving of special bank audit standards based on auditors proposals, speeding up work to establish a payment system meeting the needs of national economy;
  - expanding the company monitoring with the aim to use its results in the functions of the Bank of Russia.
  

• developing basic principles and standards of Russian auditing in cooperation with the Bank of Russia adapting the international requirements to the Russian auditing conditions;
• developing and introducing the company standards to upgrade the bank audit quality;
• interacting with the Bank of Russia to exchange information, develop methods for analyzing the financial position of credit institutions.

• working out the state programme for the economy restructuring, boosting the investment activities, increasing the employment and the effective demand, recovery of the public finances, development of the securities market;
• forming a system of stimuls for development of priority industries so as to set up conditions for investments in real sectors of the economy;
• making prompt provisions to improve the taxation system of credit institutions using equal tax rates compared to other economic entities, charging expenses in setting up reserves to eventual losses on loans and other transactions for the taxable basis reduction, ruling out taxation of revalued foreign currency put as bank charter capital;
• making arrangements to attract foreign capital into Russias economy, including the banking sector, and to develop the relevant financial infrastructure;
• taking steps to increase the information transparency of all institutions through introduction of IAS;
• establishing a system to inform credit institutions, domestic and foreign investment communities on the most promising investment projects in the Russian Federation to provide full disclosure of information on these projects;
• using the bank owners authority in full measure;
• promoting a speedy adoption of the package of draft laws submitted by the Bank of Russia for further development of the banking sector;
• maintaining the bank stability instrumental for participation of credit institutions in financing the real sector of national economy.

• Adopting amendments into the legislative basis of the banking system reform to include the capital adequacy ratio into insolvency criteria for credit institutions:
  -  grant the Bank of Russia the right to decrease the charter capital of a credit institution if it is above the own funds;
  -  introducing amendments into the existing legislation for more rigid requirements on the management and owners of credit institutions;
  
• adopting Part 2 of the Tax Code specifying unified approach to taxation of all economic entities;
• adopting the Federal law on guarantees for individual bank deposits;
• allocating funds to continue the bank system restructuring when considering and adopting the Federal law on Federal budget for 2001.

St.-Petersburg Foundation for Support of the International Banking Congresses
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St.Petersburg, 195172, Russia
Tel. (7-812)520-51-20
Fax (7-812)520-56-66 or 520-56-67
E-mail: mbk@mbk.spb.ru