There Is no Point in Counting on Accelerated Growth of Bank Landing to the Economy

This path will lead to massive foreign borrowing and will reduce the financial stability of the entire banking system.

Members of the expert group on financial and banking sector, working on updating the strategy for socio-economic development until 2020, have reached these conclusions. It appears that the financial and banking part of the document needs to be rewritten. It is true that the question where to get resources for economic growth remains wide open.

The present version of “Strategy 2020” boasts of a powerful growth of bank lending. As was planned before, its share in the GDP should grow from 34% in 2008 to 80-85% in 2020. However, the banks lack resources for such breakthrough. Non financial sector will remain a chronic debtor to banks in the coming decade.  Household deposits will not save the situation either. Household saving accounts are too costly. In these circumstances banks are left with a single choice: to borrow oversees.

However, precisely aggressive attraction of the foreign resources by the banks became the reason for their dire state in the time of crisis. The debt of the banking sector before foreign creditors amounted to nearly 200 bn dollars, overall private sector debt constituted about 500 bn dollars. 2006-2008 credit boom led to this situation when the ratio between credits to deposits reached 120 %.

According to our calculations, if during the pre-crisis years we managed to avoid such overheating, we would have sacrificed about 2% of the GDP. However private external debt would have been half of what it is now. We recommend building the future model of the bank lending on the balanced and moderate one, which is around 65% to the GDP.

А.L. Vedev – Director of the Center for Structural Studies