Translation. Region: Russian Federation –
Source: Central Bank of Russia
An important disclaimer is at the bottom of this article.
Good afternoon, dear senators, dear Valentina Ivanovna (Matvienko. – Ed.)!
Thank you for the invitation to speak today. I'll talk about what we're doing in terms of financial market development. Much of what I'll be discussing is the result of our joint efforts. We work closely with Nikolai Andreevich Zhuravlev, Anatoly Dmitrievich Artamonov, and his colleagues on the committee. When discussing the economy, the financial market is sometimes marginalized, or even contrasted with the real sector, but this is, of course, incorrect. The financial market can and should make a significant contribution to both economic development and social stability, but for this to happen, it itself must be healthy and resilient and enjoy the trust of citizens and businesses. This is what we're working on.
But I'll start with what, of course, interests everyone: the key interest rate, inflation, and economic growth.
Needless to say, the exceptional conditions under which the economy is currently operating are exceptional. All resources are being utilized, and sanctions pressure is constantly growing. Naturally, this requires decisive and, most importantly, coordinated action.
We raised the key rate in both 2023 and 2024. Why did we do this? To protect the economy as a whole, our citizens, businesses, and the budget from the risk of ever-rising inflation. You know better than I do that people are concerned about inflation; it's a social problem, especially for pensioners, large families, and anyone who is vulnerable in one way or another. While incomes are growing on average, many people are in need and are forced to deny themselves the most basic necessities. High price increases hit them the hardest. We need to address this problem to prevent it from becoming chronic, despite all the obstacles, restrictions, and new challenges.
A common question we're asked is: Is the economy paying too high a price for fighting inflation? Isn't it time to radically lower the key interest rate?
I want to emphasize a crucial point: reducing inflation does not conflict with economic growth objectives or national development goals. Can the economy achieve a breakthrough if price stability is sacrificed and inflation is allowed to accelerate? Yes, but only for a very short period. The economy won't be able to repeat this year after year, while inflation will continue to rise day after day. This policy of pumping up demand with monetary pressure is a guaranteed path directly to stagflation, and in the worst case, hyperinflation and financial crisis. This is confirmed by our experience of the 1990s, which I'm sure no one wants to repeat, and by the experience of other countries.
This will set the economy back significantly, including reversing all the results of the fight against poverty.
Now, about the risk of so-called overcooling, or recession. This could only be discussed if unemployment rose significantly and real wages fell. Neither is currently the case; the situation here is diametrically opposed: unemployment is at record lows, people have jobs, wage growth is high, and yet inflation is still twice the target.
What does such low unemployment indicate? It means the economy has utilized virtually all available labor resources. New production requires labor. Even automation and investment projects require labor. If labor is practically unavailable, a low key rate and explosive growth in lending will only lead to a rapid increase in prices for machine tools, materials, and final consumer goods, and will increase budget expenditures on literally everything.
Even with such strict restrictions, the goals of import substitution and technological leadership remain. The government is making appropriate decisions, supporting priority sectors, and working to improve labor productivity. What can the Central Bank do in this situation?
Of course, the basic condition is not to suppress demand, to maintain room for lending growth so that businesses can develop and continue their investment projects. You're absolutely right when you tell us that monetary policy must be balanced. And lending continues to grow this year. In the first nine months of this year, the business loan portfolio grew by 5.4 trillion rubles. Yes, this is half as much as in the same period last year, but you must admit, it's still significant growth. We expect business lending to grow by 10-13% for the year.
Why is it important that lending not accelerate too quickly? Lending is money creation, the main source of new money in the economy. If lending grows moderately, it doesn't lead to inflation as high as last year.
We're sometimes criticized for clamping down on credit growth through strict bank regulation in addition to the key rate. That's not entirely true. We've simply rolled back the relaxations for banks that were granted when sanctions were introduced, which were intended to be temporary. We need to return to a normal level of regulation to ensure that banks themselves remain resilient under any scenario. Currently, the banking system's capital buffer above the mandatory minimum is 8 trillion rubles. What does this mean? It means banks can increase their loan portfolios by another 4 trillion rubles this year and by 12 trillion rubles next year without losing their margin of safety. Because capital is needed precisely to increase lending. Incidentally, this capital doesn't just appear out of thin air. More than half of banks' profits goes into capital; it's their investment in future loans, and every ruble removed from banks' profits reduces the economy's lending potential by about 10 rubles.
More moderate credit growth, as well as the overall limited resources in the economy, forces us to prioritize more carefully. And here, the program that encourages banks to primarily lend to projects promoting technological sovereignty and structural adaptation of the economy is producing good results. As you may recall, this program began very slowly, but now we see the number of such projects gradually growing, reaching 60. The volume of loans under this program is also growing—it currently stands at 1 trillion rubles. And the total volume of credit lines opened by banks for such projects has reached 3 trillion rubles.
What else can be done at the level of banking regulation? We want to make concession projects and public-private partnerships more attractive to banks. This will help regions build roads and bridges, schools, hospitals, and upgrade urban and public infrastructure.
Recently, businesses have been increasingly raising funds through bond issuance. Currently, for every 3 rubles in loans, a business receives 1 ruble in bond financing. So, these are also financing methods. Our shared goal now is to encourage businesses to equally actively raise funds through equity issuance. We have many growing companies that would be of interest to investors. Why are there so few equity offerings? One reason is that companies have incentives to take out preferential loans, but there aren't as strong incentives to enter the equity market.
We've been in dialogue with the government for the second year, and there's general support from the government, to correct this imbalance and ensure that state support isn't limited to preferential loans. To qualify for a preferential loan, you have to take out a loan, but we want the benefit to extend to companies entering the stock market. There's been progress with small and medium-sized companies, but there haven't been any major shifts. We believe we need to ensure investors have a broad range of tools with their own incentives. For example, the long-term savings program is performing well. I'd like to emphasize that this is a much less inflationary source and method of financing.
For all these instruments to be in demand, investors need trust. Trust emerges when there are clear rules of the game and they are not violated. First and foremost, investors need complete and transparent information about the results and prospects of the company in which they invest their money. Confidence that by investing, they will receive income and dividends if the company promises them. This is something we still need to work on together with the government and market participants.
And there shouldn't be cases where, due to a change in the main shareholder, the majority shareholder, the rights of minority shareholders—our citizens—are violated. This is what most undermines trust and devalues all other efforts.
Now I will move on to another key area of work for the Bank of Russia – the development of payments and financial technologies.
There are tangible results here. Suffice it to say that over the past five years, since 2020, the share of financial services citizens receive online has grown from 63.5% to 88.5%. This means that citizens can now access the lion's share of financial services online. This is a very high figure by international standards. It proves that we can maintain technological leadership despite all external constraints.
We rely on a national payment infrastructure. We have all its components in place. Believe me, few countries have all the components of a national payment infrastructure. This gives independence to the financial system and adds stability to the entire economy. And, just as importantly, it helps reduce costs for businesses. When there's a uniform infrastructure, when there's choice in payment methods and payment acceptance, competition arises, which always benefits consumers. For example, merchants are increasingly using alternatives to card payments, including the Faster Payment System with its low fees. You remember how we developed it, and we thank you for the relevant legislative decisions.
The digital ruble will expand the choice of payment instruments. We're continuing our pilot, expanding the number of participants and types of transactions. Starting in September next year, all clients of major banks will be able to open digital ruble accounts and transfer non-cash rubles into digital rubles and vice versa. I emphasize: "if desired," because using the digital ruble must and will be completely voluntary.
Together with the Ministry of Finance and the Treasury, and the regions, we are preparing to introduce the digital ruble in the public sector. We recently conducted a successful experiment with digital ruble payments for capital construction contracts, where monitoring the targeted spending of budget funds is critical. What is the advantage of the digital ruble platform? Our technologies allow us to define at the program level who can be paid and for what—specific contractors, specific subcontractors, concrete payments, employee salaries, and so on. We can also specify when payments should be made—for example, upon receipt of confirmation of work acceptance from the state system.
I think the digital ruble will be in great demand in the budget process, and at the regional level as well.
Thanks to the pioneering regions—Tatarstan, Chuvashia, and Rostov—with whom we tested targeted payments. Our colleagues have confirmed that the digital ruble allows for savings on budget administration, not to mention instant transfers. Digital ruble transactions will become available to all regional and local budgets in 2027. However, I believe we should already be evaluating which transactions would be effective with the digital ruble.
Digital infrastructure is an area where we work closely with the Ministry of Digital Development, Communications, and the Government, creating services that integrate with Gosuslugi. A good example is the social account and social deposit. This is a new feature this year, and thank you for your support of this initiative. We wouldn't have been able to implement this service without the collaboration between Gosuslugi and banks. Banks can verify that a person meets the criteria established by law. And a person doesn't need to collect any documents; they can simply click a button on Gosuslugi and open a deposit. I believe that over time, this tool, albeit a small one, will nonetheless be a help for people with low incomes.
Our goal is to ensure that the financial market is not only technologically advanced and developed, but also that consumer rights are reliably protected. And the Federation Council shares this approach, not just in words, but in practice.
But we understand that no rules or changes will make a big difference if violators face no risk. I've raised this issue of fines for banks several times. Compared to the benefits they receive from violating consumer rights, these fines are a pittance. They should be proportionate to both the violations and the bank. Then even a large bank will think twice before violating these rules. Banks are good at counting money. The same fines we're proposing now—some say they're exorbitant—have been effective for 10 years now against violations of anti-money laundering laws. In my opinion, they're working remarkably well. I hope that consumer protection, which is no less important, will see a similar deterrent. I thank the senators who are working on this bill.
Another issue on which we are in constant contact with the Federation Council is preventing debt overload. This has three main areas. The first is legislative guarantees for borrowers. The second is limiting the debt burden. The third is combating illegal lenders.
Much has been done to develop legislative guarantees. I'll mention only the law on loan holidays for small and medium-sized businesses. This insurance provides greater confidence for businesses.
Citizens have long had the right to a loan deferment. We now want to supplement this with comprehensive debt settlement. When a borrower has loans and credits issued by different banks and microfinance organizations (and this is not uncommon), they should be able to obtain a deferment without having to apply and visit each individual lender. The President has issued a directive, and a bill was recently submitted to the Duma. We hope for your support.
Next, there are the adopted laws on installment plans. We discussed them at length, and it's good that installment plan buyers are now protected, and this gap in the legislation is finally closed.
But we also need to regulate the purchase of housing on installment plans. We are working with the government on this, and I hope consumer rights will also be reliably protected.
Because an installment plan is the same as a loan. And we believe the money should be transferred to the apartment seller only after the apartment is registered as the individual's property. This prevents any abuse. Until then, the funds should be held in an escrow account, just as is currently the case with a mortgage.
Finally, as with regular installment plans, transaction details must be reported to credit bureaus. If we want to prevent banks from inadvertently driving people into bankruptcy, they must be able to assess a person's entire debt burden, including the amount owed under the installment plan. Currently, banks issue loans without knowing about real estate installments, which can be large sums.
This is important to reduce the share of loans to borrowers with high debt burdens. In consumer lending, we've reduced the share of such loans for borrowers with high debt burdens by almost three times over two years; it's now 21%, while it used to be three times higher. A "high debt burden" is defined as someone who spends more than half of their income on loan servicing. We believe this approach should be implemented in other areas as well.
Another topic I'd like to discuss, one that's always top of your agenda, is microfinance organizations. A bill is currently being prepared for its second reading, which, in our view, will further improve order in this sector.
We are taking consistent action to prevent the rise of black market lenders. Unfortunately, there are plenty of illegal lenders in the financial market. In the first three quarters of this year, we identified nearly 5,800 Ponzi schemes, black market lenders, and other illegal companies and projects. We are actively assisting law enforcement agencies in combating them, including by initiating the blocking of websites used by illegal lenders and scammers (more than 16,000 websites were blocked in the first nine months of this year).
Telephone fraud is an equally pressing problem. In a short time, thanks to legislative support, we've significantly expanded our arsenal of measures. There are some very positive signs, albeit early ones, including a decline in complaints about telephone scammers. They've fallen by 15% in the first nine months of this year. But we need to see if this trend is sustainable; it's too early to judge; this is just the beginning.
The self-prohibition mechanism for loans has been in effect since March, as we discussed earlier. It must be said that this mechanism has proven very popular. Almost 17 million people have already used this option.
Self-prohibition is a good insurance policy, but it still requires a person to take at least minimal action. Since September, a mechanism has been in place that is triggered automatically. This is a cooling-off period before large loans are issued. That is, the loan is approved, but before the funds are actually received, to prevent fraudsters from influencing the process, a cooling-off period is given. We'll see how it works; it's really only just begun.
Since September, cash withdrawals from ATMs have also been protected from fraud. Banks use criteria we set to verify whether a person is under influence or withdrawing money fraudulently. If a person's behavior is unusual, banks may impose limits on ATM withdrawals. It's crucial to monitor how this regulation works to avoid unnecessary obstacles for honest users.
And the last thing I'd like to say in this context: a fraudulent attack always occurs in two stages: first, a person receives a call, then the money is withdrawn. Banks have already learned and continue to work to suspend suspicious transfers. If they fail to do so, they are held accountable and reimburse the stolen funds. This applies to failure to comply with established anti-fraud procedures. In our opinion, telecom operators should, of course, be held accountable, as they can also monitor all of this. They should develop a clear and unified action plan, develop a list of indicators by which to identify fraudulent calls, and bear responsibility if theft does occur. This issue is one of the key ones in the "Anti-Fraud 2.0" legislative package currently being developed by the Government, and we are also participating in this work. We believe this is crucial for truly reversing this trend and achieving results in the fight against fraud, which affects many of our citizens.
This is perhaps the main point I'd like to make in my speech. There are many aspects of this work, and we received many questions from you. We've responded to all of these questions in writing, and I hope we were able to clarify them. We are, of course, ready to remain in touch and answer questions not only at meetings but also on an ongoing basis, as we currently do. And thank you very much for your suggestions, as they allow us to develop more effective and informed decisions.
Thank you for your attention and I will be happy to answer your questions. Thank you!
Preview photo: Press Service of the Federation Council
Please note: This information is raw content obtained directly from the source. It represents an accurate account of the source's assertions and does not necessarily reflect the position of MIL-OSI or its clients.
