Elvira Nabiullina: Review of Russia's economic and financial
developments in 2016
Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the plenary session of the
State Duma of the Russian Federation, Moscow, 9 June 2017.
* * *
Dear Vyacheslav Volodin, and deputies of the State Duma!
The Central Bank is guided in its actions by strategic objectives. I want to note that across the
country, every employee of the Bank of Russia knows what these are. They are the basis on
which key performance indicators for employees are formulated.
These objectives are:
price stability;
financial market sustainability;
availability of financial products and services for households and businesses;
development of the national payment system;
development of technologies and support of innovations in the financial market.
These objectives follow directly from the functions of the Central Bank, as defined by the
Constitution and by the law. Yesterday, I took another look at the speech I gave to the Duma four
years ago. Yes, of course, life has made adjustments. No one back in 2013 expected such
negative external factors, the sanctions, and the drop in oil prices. So the task of ensuring
financial stability has come to the forefront of our activities. But in dealing with this problem, we
have tried not to lose sight of strategically important activities that we assigned ourselves four
years ago, and we must continue to work towards the completion of these.
As regards monetary policy, the Bank of Russia set itself the task of reducing inflation from the
level at that time of 7% to 3-4%. But, as you will see, we also noted that the rate of decline must
be dictated by the economic situation. Therefore, due to external shocks, achieving this target
took longer than expected. However we are already very close to the target level.
The second objective in terms of monetary policy which we set ourselves four years ago was to
increase the flexibility of the exchange rate. We have moved to a floating exchange rate and
consider this to have been the right decision, as the negative experiences of other exporting
countries that did not switch to a floating exchange rate prove to us that this needed to be done.
Within the banking sector, we set ourselves the tasks of strengthening supervision and
withdrawing from the market of weak players. Unfortunately, accumulated problems in the
banking sector turned out to be more serious than was assumed four years ago. And this
situation has only been aggravated by crisis. The process of cleaning up the banking sector is
not yet complete and, according to our estimates, will take another 2-3 years. Strengthening
supervision will require us to restructure internal organisation significantly - a process we are
currently undergoing.
Four years ago we decided to establish a mega-regulator. We were handed responsibility for the
regulation and supervision across all sectors of the financial market, numbering 20 thousand
supervised units. And, as in the banking sector, we have been consistently focusing on ridding
the market of unscrupulous players, and introducing new standards of regulation in order to
ensure the sustainability of all financial institutions and to increase businesses' and individuals'
confidence in the financial market.
Then we were set the task of developing a national payment system. This has become more
pressing in connection with the sanctions, and, as I have mentioned, we managed to achieve this
task ahead of schedule, even before 2016.
Further progress towards these strategic tasks constitutes the main objectives for the coming
five years.
In the sphere of monetary policy, our task is to ensure a stable low rate of inflation: we want not
just to achieve a level of 4% one time, or for one or two months, but to deliver a stable level of low
inflation.
This will also lead to lower interest rates, longer loans, and will give businesses and individuals
the ability to make long-term plans - in rubles, specifically, rather than foreign currency. All of this
ultimately contributes to economic growth.
The key task in the banking sector, as I have mentioned, is to complete the process of cleaning it
up, improving the quality of supervision, increasing its proactivity in the early stages and
transitioning to consulting oversight, wherein we help conscientious financial market participants
to fix their problems, while there is still time to do so.
We understand that the task of strengthening and enhancing the financial stability of banks
cannot be single-handedly managed by the Bank of Russia alone. It is important to place more
responsibility for misconduct on the owners and managers of credit organisations themselves, to
ensure the irreversibility of punishments for crimes.
Qualitative changes are in store for the banking industry - these include a transition to a three-tier
banking system, comprised of systemically important banks, banks with universal licences, and
banks with basic licences. This is a radical change in the banking system, which we will need to
implement with care in the near future. The three main tasks set before us, which we are
currently resolving, are: to better manage risk, so as to protect the rights of depositors and
creditors; to promote the availability of credit, including credit for small businesses; and to ensure
fair competition, wherein a bank of any type will be able to work and earn within their niche in the
market.
Another pressing task is the implementation of a new resolution mechanism. We hope that it will
be in place by autumn, when we will be ready to use it. This will allow us both to reduce the cost
and to speed up the resolution mechanism, in order to make rehabilitated banks more attractive
to investors.
In the banking sector, as well as in the financial sector overall, the challenge lies not only in
rehabilitating and cleaning up, but also in creating the conditions for development. This will come
to the fore over the course of the next five years.
Creating conditions for development involves: introducing a system of individual pension capital -
essentially a voluntary system for individuals; developing non-bank financing and the bond
market; developing the capital market - in essence, creating long-term money for the country. At
the moment we don't have long-term money, and so we must and will be doing everything we
can to create it.
Further development of the payment system will involve a smooth transfer of the salaries of
public sector employees and social payments on to a card system called "Mir". To make this
transfer smooth and orderly is our task for the near future. We will also be aiming to expand the
acceptance of the Mir card outside of Russia. We have already begun plans and arrangements
with other countries on this front.
Finally, I will return to the topic of financial technology development - I have also spoken about
this previously. The development of financial technologies will in large part determine the specific
actions to be taken by us in the coming years. This will involve active joint efforts with
businesses. Legislative support is also important here, particularly in terms of remote
authentication, which will make new technologies and digital technologies possible. This implies
a transition to electronic document workflow in the financial market. Here indeed we have a
backlog, and we need to cross over to this new system in order to reduce costs for the financial
sector and ultimately reduce the cost of credit. This will also result in cheaper loans.
We will be carrying out tests on the market of new technologies, such as distributed ledger
technology based on a blockchain technology, and we have already begun this process in order
to implement the regulation of new technologies rationally, protecting the markets from risks.
At the beginning of this speech I mentioned the strategic objectives of the Bank of Russia. These
are our key priorities. You may have noticed that the tasks we set ourselves four years ago and
those for the year 2016, which I have been speaking about today, as well as challenges of the
future, are all, of course, related to each other. We consider it to be very important to respect the
principles of continuity, consistency and predictability. We will no doubt be responding with
flexibility to any given situation. The situation is volatile, there is a lot of uncertainty in the world.
We will have to react in accordance with the challenges presented to us. But the consistency of
our policy, I think, is very important. The preservation of trust is vital to development, as well as to
financial markets. This is a key category - trust in the financial market and trust in monetary
policy have been the most influential factors in terms of economic growth. We view our policy as
part of an overall economic policy aimed at creating conditions for sustainable long-term
economic growth in our country.
Thank you very much!