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21
ICROSS-BORDER INVESTMENTS AND BANK EXPANSION IN RUSSIA
Mstislav Afanasiev
Doctor of Economic Sciences, Professor, Department of Politics and Management, National Research University Higher School of Economics. Address: 20 Myasnitskaya Str., 101000Moscow, Russian Federation. E-mail: mstafan@hse.ru
Natalia Shash
Doctor of Economic Sciences, Professor, Department of Financial Management,
Plekhanov Russian University of Economics.
Address: 36 Stremyanny Per., 117997 Moscow, Russian Federation.
E-mail: nat_vshu@mail.ru
Abstract
The paper looks into the specifics of cross-border investments related to changes in the direction of capital flow. The growth factors regarding the export of capital have been identified from the point of view of the Neo-Keynesian theory of investment, which describes a situation when the economy of a country demonstrates a stable excess of the gross saving rate (gross saving to GDP ratio) over the gross accumulation rate (gross accumulation to GDP ratio), which can be the result of forcing exports and/or rapidly growing prices for the main export commodities. The paper presents the results of the evaluated international investment activity of the Russian Federation in 2018-2019, formed with standard components. The main indicators, characterizing financial stability and positions of the Russian banking system given the sectoral limitations, have been reported.
The key trade and investment positions of the Russian Federation and the EU countries have been analyzed. Calculations have been made to demonstrate the volume of direct Russian investments in the EU countries within 2010-2017. Some peculiarities have been identified and the presence of asymmetry in the investment cooperation between the EU and the RF has been confirmed. Specific features of the Russian export of capital have been revealed. A range of factors, preconditioning a growth of flow of Russian bank capital to the countries of the EU, has been formed. The main parameters of the international investment activity of Russian banking institutions have been presented and some data have been given on the geographical distribution of foreign assets and liabilities of the Russian bank sector by groups of countries and individual (most attractive for Russian investment) countries of the world. It has been concluded that supporting European expansion of the national banking institutions could be one of the prioritized directions of the state policy of the Russian Federation in the banking sector.
Keywords: Neo-Keynesian theory of investment, sanction limitations, international investment position, bank capital flow, macro-prudential indicators, investment positions, export of bank capital, investment cooperation.
Citation: Afanasiev, M. P. & Shash, N. N. (2019). Russian Federation Cross-Border Investments and Bank Expansion in Russia. Public Administration Issue, no 6, (Special Issue II, electronic edition), pp. 105-120 (in English); DOI: 10.17323/1999-5431-2019-0-6-105-120.
Global processes in the world's financial system triggered the process of trans-
nationalization of bank capital. The flow of national bank capital within international investment initiatives has been the effect of financial globalization. At the same time, investment activity in economically developed countries has reduced over recent years, which has caused radical changes in the movement of cross-border flows of capital. Herein, the issues related to the sustainability of national economies are becoming very important, because the latter are affected by a turn in cross-border flows of capital and shocks related to it.
The paper is aimed at evaluating the investment prospects of the Russian Federation and identifying a range of factors which contribute to more active and intense exports of Russian bank capital at a time when the regime of economic and financial sanctions continues to operate.
Factors affecting cross-border flows of capital in the world economy
The problems of various aspects of cross-border flows of capital and related risks and shocks, caused by instability of capital flow have been actively studied and analyzed by such authors as Aghion P., Howitt P. (2009), Aizenman J., Pasricha G.K. (2012), Chinn M.D., Ito H. (2008), Alberola E., Erne A., Serena J.M. (2012), Calvo G., Reinhart C. (2000), Glick R., Hutchison M. (2008), Kamin S.B. (2010), Ocampo J.A., Stiglitz J.E. (2008), Lankes H.P., Venables A.J. (2006), Ohanian L.E., Restrepo-Echa-varria P., Wright M.L.J. (2016), Pelto E., Peeter V., Liuhto K. (2004).
According to the experts, the main factor of the growing export of capital is a stable excess of the gross savings rate (gross savings to GDP ratio) over the gross accumulation rate (gross accumulation to GDP ratio), which occurs both due to a high gross savings rate and, primarily due to a positive current account balance (being the result of forced export and/or rapidly growing prices for the main products of this export), and due to a lack of a quite high accumulation rate in the country (Calvo, 1998; Lankes & Venables, 2006).
Since 2014, countries with emerging markets have been playing an increasingly important role in these processes, mainly due to higher rates of economic growth and their bigger share in the structure of the world economy (Ohanian, Restrepo-Echa-varria & Wright, 2016, p. 25). However, it has to be said that Asian countries have a significant position in the international flow of capital. Their share in the import of direct investments grew a lot within the period of 2014-2018 (from 53% to 76%).
As for the export of direct investments, this indicator demonstrated a growth from 24% to 47%. A leading position in the group of Asian countries is taken, without a doubt, by China. Thus, the flow of investment import and export in 2017 comprised
a third of the investment activity of this group of countries (Global Financial Stability Reports, p. 18). The Russian Federation is no exception; among the countries with an emerging market (for example, its BRICS partners), it gives way only to China.
The BRICS countries take an active part in the international flow of capital, both as net exporters of capital (China, Russia and the Republic of South Africa) and as net importers (Brazil and India). In 2017 the import of direct investments into the BRICS countries comprised $266 bln (Pelto, Peeter & Liuhto, 2004, p. 5), while the share of the BRICS in the world flow dropped to 15%, falling four positions since 2016. This caused a subsequent reduction in the volume of accumulated direct foreign investment in the BRICS countries. The picture is different in terms of direct investments the BRICS countries accumulated abroad, which increased in 2017 to 8.5% higher than the rest of the world, despite a sharp fall in the flows of direct investments from China due to legal restrictions on the export of capital from the country (Ocampo & Stiglitz, 2008, p. 79).
By and large, within 2000-2018, the share of the RF in the world export of capital was 1.7%, while this indicator in China was equal to 2.6%, in Brazil - 0.5%, in India - 0.2%, and in the Republic of South Africa - 0.1%. In the current (2019) year, the net export of capital by the private sector from Russia increased by 2.1 times in January-February in comparison to the indicator for the same period last year and comprises $18.6 bln.
In accordance with the Neo-Keynesian theory of investments, this situation is characterized by the equation S - I = B, where S is savings, I is investments in real capital (investments in non-financial assets, gross accumulation), and B is a positive account balance of current transactions of the balance of payments (Ito, 2010, p. 15).
According to the equation, the positive account balance of current transactions is defined by the difference between saving and gross accumulation. Neo-Keynes-ian theory explains this situation in the following way: If a country systematically generates more savings in comparison with investments in real capital inside the country, the surplus of savings leaves the country - in the capital transactions and financial instruments account. It takes a form of the export of capital exceeding its import, and forex reserves increase (Pelto, Peeter & Liuhto, 2004, p. 8).
These conclusions are supported by the position of the Central Bank of the Russian Federation, according to which the balance of financial transactions (capital flight) of the private sector within the reporting period was formed mainly at the expense of growing net financial assets. This trend can be accounted by a considerable strengthening of the trade balance affected by an increase in the volume of export operations, which grows faster than the recovery rates of import.
According to the evaluation of the Bank of Russia, the positive account balance of current transactions of the trade balance of the Russian Federation in the first six months of 2019 was $45.8 bln facing $47.7 bln in January-June 2018, which was the result of an insignificant reduction in the surplus of foreign trade of commodities due to a more considerable decrease in the value indicator of the export of goods in comparison with their import. Moreover, the noted reduction in the surplus of the trade balance was partially compensated by a reduced negative balance of the balance of services, which was caused not only by falling imports, but also by a slight growth in the volume of exports in the external trade of services.
The balance of financial operations of the private sector in January-June 2019, according to the Bank of Russia, increased to $27.3 bln (this indicator for the same period - January-June 2018 - was $110 bln). This indicator was affected by an increase in the volume of bank transactions related to depositing money abroad and covering liabilities to non-residents. The operations of other sectors had a neutral effect on the dynamics of the indicator. The international reserves of Russia, as a result, grew by $35.2 bln, mainly due to purchasing foreign currencies on the domestic market according to the budgetary rules and receiving money from placement of sovereign securities.
Evaluating the International Investment Position of the Russian Federation
The importance of analyzing the Net International Investment Position (NIIP) is defined by the fact that this indicator together with the value of non-financial assets makes it possible to assess the net cost of capital in the economy of the country (balancing item of the national balance of assets and liabilities) (Balance of Payments and International..., p. 3). The NIIP can be used as a "barometer" of the financial position and credibility of the country. The results of evaluating the NIIP of the Russian Federation by standard components are presented in Table 1.
Table 1
International Investment Position (NIIP) of the Russian Federation in 2018 (standard components)*
$ mil.
Balance Change Change Other Balance as of as a result as a result , as of 1.01.2018 of transactions of reevaluation changes 01.01.2019
Net International Investment Position (NIIP) 272 632 115 261 - 26 885 9 932 370 940
ASSETS 1 339 011 78 843 - 79 067 1 428 1 340 216
Direct investments 468 567 31 929 - 62 621 - 4 535 433 341
Portfolio investments 73 946 - 1 827 - 2 575 - 992 68 551
Derivatives 4 853 - 11 708 14 677 - 1 415 6 407
Other investments 358 903 22 249 - 12 691 - 5 038 363 422
LIABILITIES 1 066 379 - 36 418 - 52 182 - 8 504 969 276
Direct investments 529 644 8 816 - 39 957 - 1890 496 613
Portfolio investments 230 155 - 9 421 -11 743 - 762 208 229
Derivatives 4 505 - 10 975 11 761 - 358 4 933
Other investments 302 076 - 24 839 - 12 242 - 5 495 259 501
The structure of the International Investment Position of the RF as of 01.01.2019 is presented in Fig. 1.
Figure 1: Structure of the International Investment Position of the Russian Federation as of 01.01.2019*
ASSETS
Reserve assets Direct investments Portfolio investments Other investments
27%
LIABILITIES
Other investments Direct investments Portfolio investments
27%
35%
22%
33% ^^^^^^ 51%
* Compiled on the basis of materials of the Central Bank of the Russian Federation. Available at: /https://www.cbr.ru
According to the data as of mid-July 2019, the International Investment Position of the Russian Federation was $482.4 bln. The time history of this indicator within the period of October 2017 - July 2019 is presented in Fig. 2.
Figure 2: Time history of the indicator of the International Investment Position of the Russian Federation (October 2017 - July 2019)*
$ млрд
560 540 520 500 480 460 440 420 400
537.5
--529Л 524.9 ~
"""485.5"""
................................
482.4
- 467.8 -
453.7
Ш
10.2017 01.2018 04.2018 07.2018 10.2018 01.2019 04.2019 07.2019
Despite the general downward trend, the positive values of the indicator of the International Investment Position of the RF within the analyzed period show the status of the country as a "net lender", which demonstrates stability of export capabilities of the domestic bank capital.
Positions of the banking sector of the Russian Federation considering sectoral limitations
Russia belongs to a group of countries (Germany, France, Japan) whose financial industry is developing based on a bank-centric model (Astrauskaite & Paskevicius, 2014, p. 114), when the financial system is oriented on bank financing. Furthermore, over the past decade the macroeconomic significance of the banking sector has increased considerably. In the total volume of assets of the financial sector, the specific weight of banks exceeds 80%. Thus, the banking sector plays a key role in the trend data of financial flows in the economy of the country.
Despite the sanction regime and some slowing down of economic growth, the financial result of the Russian banking sector within 2016-2018 demonstrates a stable positive trend. At the end of 2018, the profit of credit organizations exceeded $20 bln, which is 1.7 times bigger than the value of this indicator in 2017.
A growing credit cycle has been one of the main development factors of the Russian banking business, while crediting has been the main source generating financial flows, which accounts for 69% of total assets of the banking system of the country.
Almost all operational indicators have improved. Profit growth rates have exceeded the dynamics of capital and assets, which led to a substantial increase of their profitability in the banking sector as a whole. The profitability of bank assets increased (from 0.97% to 1.54%), the same as that of bank capital (from 8.3% to 13.8%).
Moreover, according to expert evaluations, in 2019 banking organizations are expected to get a profit in the amount of $27.7-29.2 bln, while the growth of assets will amount to 6-8%, and the level of profitability will reach the pre-crisis level. However, the projected rise in competitive pressure in the banking sector, most probably, will not make it possible to increase the growth rates of last year (2018).
The total capital of the Russian banking system in 2018 grew by 9.3% and as of 1 January 2019 reached the value of $158.5 bln (Fig. 3). This indicator is noticeably higher than the values of 2017, when its growth rates were identified as zero. At the same time the growth rates were registered lower that the average annual rates in 2013-2016, when they reached 11.4%. It should be noted than this increment, to a certain point, was provided by the monetary authorities within the programs of financial recovery and capitalization support of some Russian banks with public ownership. In addition, the trends of the analyzed indicators are noticeably different within various groups of banking organizations.
180 160 140 120 100 80 60 40 20 0
Figure 3: Trends of the RF banking sector's own funds and capital adequacy ratio (H 1.0)*
158.5
$ млрд
H 1.0
* The values of H 1.0 (indicator of one's own bank capital adequacy ratio) by years are presented for the entire banking system based on the data of the Bank of Russia. Available at: https://www.cbr.ru
As can be seen from Figure 3, since 2017 the indicators of the Russian banking sector's capital adequacy ratio (Basel III) for the banking system as a whole have been met with a certain "margin of safety". This helped the Russian banking system to reach a level close to the average world values by these important coefficients.
However, since 2016 the values of macroprudential indicators, characterizing the sustainability of the banking system, have demonstrated a certain downward trend (Table 2).
Table 2
Trends of macroprudential indicators, characterizing the sustainability of the banking sector of the Russian Federation over a seven year period (%)
Indicator name 1.01.2013 1.01.2014 1.01.2015 1.01.2016 01.01.17 01.01.18 01.01.19
Capital / GDP 40.6 44.4 51.6 52.7 47.5 46.0 46.6
Assets / GDP 72.6 78.5 98.0 99.5 92.9 92.6 90.8
Credits to the economy / GDP 20.9 23.2 23.4 27.8 28.1 28.2 27.5
Deposits of private customers / GDP 9.0 9.7 10.0 10.8 10.9 10.2 9.9
Source: Based on data of the Bank of Russia. Available at: https://www.cbr.ru
Given the role of the banking sector in the financial system and the economy of the country as a whole, it seems reasonable to analyze the trends of the indicator of the Net International Investment Position of the Russian banking sector by standard components (Table 3).
Table 3
International Investment Position of the banking sector of the Russian Federation as of the period January-April 2019*
$ mil.
Reevaluation Balance Change as a result _ ^ _ ^ . Balance , . .. . Other Total , as of as a result of change in h h as of 01.01.2019 of transactions the exchange rate c anges c anges 01.04.2019 and market prices
ASSETS 193 409 9149 2 764 -3 536 8 377 201 786
Direct investments 12 388 635 -105 -15 516 12 904
Portfolio investments 33 553 -422 696 -358 -84 33 469
Derivatives 6 387 -2 267 1 432 -61 -897 5 490
Other investments 141 081 11 203 741 -3 102 8 842 149 923
LIABILITIES 124 605 -3 159 8 767 -51 5 557 130162
Direct investments 20 744 587 1 067 -15 1 639 22 383
Portfolio investments 23 141 - 16 4 366 -24 4 326 27 467
Derivatives 4 931 -2 804 2 607 -7 -204 4 727
Other investments 75 790 -926 727 -6 -205 75 585
NET INTERNATIONAL INVESTMENT POSITION (NIIP) 68 804 12 308 -6 003 -3 484 2 820 71 624
* The International Investment Position of the RF has been calculated according to the data of credit organizations, including the state development corporation VEB.RF without considering non-banking credit organizations according to the guidelines suggested by the IMF (sixth edition of the IMF manual).
Available at: https://www.imf.org
Developing financial technologies and the need to apply promising approaches to regulating cross-border financial services provide new opportunities and form a set of limitations in the financial sector.
Specifics and asymmetry of investment cooperation between the EU and the Russian Federation
The basis for the development of trade and investment cooperation between the EU and Russia is the Partnership and Cooperation Agreement (PCA) concluded in 1997 and suspended by the EU in 2014 due to the events in Ukraine. However, despite the previously introduced sanctions regime, the EU is the biggest partner for the Russian Federation, while Russia is the fourth largest trade partner for the EU (Gros & Di Salvo, 2017, p. 134).
In terms of the structure of foreign trade of Russia, the EU holds the leading position as the largest economic partner of the country. The EU's share of Rus-
sian commodity circulation fell to 43.1% in January-October 2018 (from 42.7% in January-October 2017), while the share of the CIS countries amounted to 11.8% (12.5%), that of the EAEU countries was 8.2% (8.9%), and that of the APEC countries was 31.0% (30.4%).
In addition, according to the statistics, commodity circulation between the EU and the RF demonstrates a gradual fall. Thus, the volume of trade operations reduced from 339 bln euros in 2012 down to 191 bln euros in 2018, i.e. the fall amounted to 44%. The EU primarily exports tools and equipment (industrial, transport, medical etc.) to Russia, whereas Russia supplies mostly mineral raw materials (oil, gas) to Europe.
In analyzing the investment positions, it can be concluded that the EU is the largest investor into the Russian economy (industrial and banking sectors). Thus, for example, % of direct investment into Russia fell for the EU. In addition, we should not ignore the fact that 30% of this value is (re)investment from the Republic of Cyprus. The RF invested only about 1% of the total volume of direct investments into EU countries.
Moreover, if we track the investment flows between the EU and the Russian Federation, we can see that the volume of European investments exceeds the investment activity of Russia in the EU countries almost by two times (Fig.4).
Figure 4: Investment flows between EU countries and Russian Federation in 2018
European Union
Russian Federation
Source: http://economy.gov.ru
Russian Federation
European Union
Investment cooperation has traditionally been important for international economic relationships despite the widespread practice of introducing sanction limitations. In order to find out about the main regularities and problems in investment cooperation between the EU and the Russian Federation, the structure of financial investments should be analyzed (Nelson, 2017, p. 311).
The average structure of investments from the EU to Russia over 10 years:
- direct investments - about 40%;
- portfolio investments - about 3%;
- miscellaneous (bank loans, trade financing) - about 57%.
The average structure of investments from Russia to EU countries over 10 years:
- direct investments - about 75%;
- portfolio investments - about 3%;
- miscellaneous (bank loans, trade financing) - about 22%.
In terms of individual EU countries, the volume of direct investments in the economies of the EU member countries over the period of 2010-2017 is presented in Table 4.
Table 4
Direct investments from the Russian Federation to the economies of the EU member countries in 2010-2017, million Euros
2010 2011 2012 2013 2014 2015 2016 2017
Austria 253 847 512 1035 5265 1135 746 258
Belgium 49 36 61 536 - 450 302 32 - 44
Bulgaria 441 319 522 716 554 308 48 41
Hungary 542 48 - 2724 67 155 67 12 13
Germany 1860 1880 971 1118 1334 1016 738 393
Greece 58 318 88 63 98 185 12 15
Denmark 16 - 4 389 215 752 - 401 307
Ireland 299 1185 527 512 264 91 479 1139
Spain 458 490 812 980 1356 1879 152 125
Italy 295 315 387 403 538 587 117 165
Cyprus 15524 18309 22930 20930 7671 23546 4249 9827
Latvia 166 147 328 348 568 513 - 22 - 62
Lithuania 57 49 66 28 46 - 66 3 8
Luxembourg 2633 2483 2005 -504 1314 639 786 - 1633
Malta 32 8 -1 - 10 2 40 4 - 14
Netherlands 4684 7035 9901 2599 -3022 2132 461 841
Poland - 50 - 2 30 - 2 73 31 67 55
Portugal 25 25 24 30 45 103 3 9
Romania 25 196 - 96 - 1 - 101 - 1 1 -
Slovakia 29 11 19 49 32 28 12 5
Slovenia 9 3 10 18 29 101 7 30
UK 3886 1232 1474 632 1294 1936 - 439 755
Finland 154 236 63 271 91 146 1454 104
France 217 334 656 1430 449 523 74 121
Croatia 75 23 103 31 71 111 19 23
Czech Republic 319 360 337 265 340 277 24 43
Sweden 177 203 489 390 -720 57 - 1 34
Estonia 29 21 30 85 120 149 63 - 5
As can be seen from the data in Table 4, in general there is a slow, but stable reduction in the shares of Cyprus, the Netherlands and Luxembourg in the incoming and outgoing foreign investments in the capital turnover of Russia and the EU. At the same time in 2017 the volume of direct investments into Ireland grew considerably. By and large, as can be seen from Table 4, these dynamics are unstable and inconsistent.
Parameters of investment activity of Russian banking institutions
In the early 2000s, the investment activity of the Russian banking sector was rather low (Christen, Fritz & Streicher, 2015, p. 42). There were individual (though sometimes quite big) deals. Thus in 2001, Alfa-Bank purchased 100% of the shares in the Amsterdam Trade Bank (Netherlands) and thus became the first Russian bank institution to own a subsidiary bank in the EU.
However, in 2004-2005 the export of Russian capital in the EU countries grew significantly because at that time Russian banks began more and more actively to increase their presence in the banking sectors of the EU countries either through acquiring existing banking institutions or through setting up bank subsidiaries and branches (Dreger, Fidrmuc, Kholodilin, & Ulbricht, 2016, p. 298).
Thus, in early 2014, a majority of the large Russian banks already had subsidiaries in the EU countries. Currently the most active exporters of banking capital are Sberbank, Alfa-Bank, VTB, and Gazprombank1. All these banking institutions are presented in a different way in countries around the world, both through representative offices and branches, and through subsidiary banks (Fig.5).
Figure 5: Expansion of the Russian banking sector in the countries of the EU
PRESENCE OF RUSSIAN BANKING INSTITUTIONS IN EU COUNTRIES
+ + + + +
Sberbank VEB VTB Bank Gazprombank Alfa-Bank
- Austria - UK - Austria - Switzerland - UK
- Germany - Switzerland - Germany - Luxembourg - Netherlands
- Switzerland - France - France - Cyprus
- Hungary - Italy - UK
- Slovenia - Germany
- Croatia
- Czech Republic
The analysis shows that virtually all banking organizations acquired by Russian owners are part of a chain of branches of Russian banks. The growth of long-term investments is, to a large extent, preconditioned by fast develop-
ment of the chain of foreign structural divisions of Russian banking institutions, whose operations are usually financed by parent organizations through making deposits and loans.
These institutions have the maximum possible freedom in terms of taking investment decisions. It is obvious that implementing these strategies in the banking sector is traditionally oriented on the active growth of business. It should also be noted that the operations of subsidiaries and branches of Russian banking organizations are complicated due to the high level of costs related to setting up and maintaining banking business (Harrell, Keatinge, Lain & Rosenberg, 2017, p. 24).
Even under the conditions of sanction limitations, the banks continue to export capital in the EU countries. According to the report of the Central Bank of the Russian Federation, the export of capital grew significantly (up to $27.3 bln) in the private sector, primarily in the banking system. This trend is explained by the existing instability on the markets of financial assets in a number of countries, such as, for example, Russia. Moreover, a certain role is played by the consequences of the sanction limitations, also sectoral ones.
Table 5-7 shows the data on the geographical distribution of foreign assets and liabilities of the Russian banking sector by groups of countries and individual (most attractive for Russian investments) countries of the world.
Table 5
Geographical distribution of foreign assets and liabilities of the banking sector of the Russian Federation in individual countries of the EU as of 1 April 2019*
$ mil.
COUNTRIES Foreign Foreign Balance of foreign assets liabilities assets and liabilities
TOTAL 121 383 66 082 55 301
AUSTRIA 7 450 3 679 3 771
BELGIUM 1 179 274 905
GERMANY 11 224 3 127 8 097
GREECE 178 126 52
IRELAND 16 519 15 621 898
SPAIN 1 796 56 1 740
CYPRUS 37 602 8 841 28 761
LUXEMBOURG 10 385 15 461 -5 077
NETHERLANDS 14 224 7 675 6 549
UK 18 498 6 984 11 514
FRANCE 2 328 4 236 -1 909
Table 6
Geographical distribution of foreign assets and liabilities of the banking sector of the Russian Federation in some countries of the world, including international organizations and institutions as of 1 April 2019
$ mil.
COUNTRIES Foreign assets Foreign liabilities Balance of foreign assets and liabilities
TOTAL 36 850 29 045 7 805
VIRGIN ISLANDS, BRITISH 108 1 871 -1 763
HONGKONG 415 119 297
JERSEY 6 345 45 6 299
INDIA 189 163 26
CANADA 407 214 193
CHINA 379 4 599 -4 220
CUBA 358 52 305
SINGAPORE 684 816 -132
USA 17 227 13 576 3 651
SWITZERLAND 10 027 2 545 7 482
JAPAN 147 3 745 -3 598
International organizations and institutions 564 1 299 -735
Source: Compiled on the basis of materials of the Central Bank of the Russian Federation. Available at: https://www.cbr.ru
Table 7
Geographical distribution of foreign assets and liabilities of the banking sector of the Russian Federation by individual groups of countries as of 1 April 2019
$ mil.
FOREIGN ASSETS FOREIGN LIABILITIES BALANCE
Short-term Long-term TOTAL Short-term Long-term TOTAL
BRICS COUNTRIES 322 249 571 770 4 006 4 776 -4 205
OECD COUNTRIES 55 914 67 374 123 288 15 811 72 402 88 212 35 076
APEC COUNTRIES 17 399 1 972 19 371 4 180 19 821 24 001 -4 630
The comparison of data presented in Tables 5 and 6 shows that the European Union is one of the most attractive directions for the flow of the Russian bank capital. In this respect, the different sanction limitations have not changed the vector of its flow (Crozet & Hinz, 2016, p. 27).
In addition, it is necessary to point out the factors which help Russian banking institutions to stimulate and maintain interest in the European direction:
1. history of Soviet foreign banks of the State Bank of the USSR;
2. change of the goals and objectives of the banking business in the European Union;
3. presence of excessive liquidity in the banking sector of the Russian Federation;
4. presence / prevalence of banks with state ownership in the Russian banking system;
5. specifics of sanction regimes in relation to parent companies and subsidiaries of Russian banks in the EU.
The largest proportion of the export of capital occurs through opposite active operations of Russian banking institutions, related to placing financial resources in those countries where investments seem attractive for banking capital. To a point, this can be explained by the lack of reliable investment opportunities inside the country. Thus, the growing flight of the Russian banking capital, which is now more than 2.5 times bigger than in the same period last year (2018) is directly caused by a threat of increasing sanction risks towards the financial sector and the rising activity of Russian banking organizations and investment institutions on the world financial markets, and, in addition, by the increasing volumes of foreign currency purchased by the Ministry of Finance of the Russian Federation and the Bank of Russia to comply with the budgetary rules. A certain role is played by the operations of Russian business structures in terms of the foreign currency liabilities they have. That being said, despite the rapid growth of foreign investment projects of Russian banking institutions, the scale of their presence in the EU countries still falls behind the needs of Russian business in financial support of foreign trade operations.
Finally, a number of conclusions can be made.
1. The changing vector of movement of cross border capital flows has opened additional investment opportunities to the countries with emerging markets (including the Russian Federation), which has led to a significant increase of their share in the world flight of capital.
2. The main factor contributing to stimulating and intensifying the process of export of Russian bank capital is the positive balance of financial operations due to an increase in net financial assets as a result of a stronger trade balance.
3. The dynamics of the indicator of the International Investment Position of the Russian Federation and analysis of the financial results of the banking sector show its capability to successfully adapt to the sanction regime.
4. The evaluation of investment activity of Russian banking institutions shows that supporting European expansion of the national banking institutions could be one of the prioritized directions of the state policy of the Russian Federation in the banking sector.
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