Banks expand sphere of activity

The Central Bank examined the stability of the banking sector, in the eventof an unfavorable situation on the financial market, Vladimir Safronov,deputy director of the Central Bank's department on banking regulation andsupervision, declared the other day. According to the results of theexamination, at present, estimated losses of the banking sector would belower than those of the financial crisis in 1998. It means that after thedefault, commercial banks started to pay more attention to running theirbusiness correctly, the Izvestia newspaper reported. In particular, theprocess of diversification has become a noticeable tendency over the pasttwo years and it plays an important role. According to the main parameters(90 percent of banks are profitable), the situation with the banking sectorcan be considered as stable. Nevertheless, an optimistic test carried outby the Central Bank has a reverse side. The examination involved 200 of thelargest banks that comprise 90 percent of the total volume of Russianbanking assets. According to its results, credit risk has a 70 percentshare in the structure of potential losses, risk of liquidity has 25percent and market risk 5 percent. Such a high risk in the sphere ofcredits may become the Achilles' heel of the Russian banking system. Thepolicy based on the increase in a credit portfolio has started failing. Theaverage rates of the credit activity of banks used to be from 30 percent to50 percent annually, however, last year they dropped to 20-30 percent.According to the forecasts based on the results of the first half of thisyear, the figures will be lower this year. In particular, according to thedata of the Ministry of Economic Development and Trade, the share ofcredits to the real sector of economy in the structure of assets of thebanking sector has remained at the level of 38.7 percent, which is the sameas it was at the beginning of 2002. The further process is becoming morerisky. According to the Russian government! , arrears in credits to the realsector of economy advanced by 26.1 percent in the period from January toJune 2002..

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