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Russian Banks in 2020
January 15, 2020 12:43

The launch of banking super-apps and ecosystems, the decrease of retail lending, mass investment, the growth of small business lending, low interest on credit cards, giving up plastic cards and the Central Bank’s control of insurance are the seven trends that the banking sector expects in 2020.

The banking market remains very dynamic: regulation is changing, the business model is changing, even the principles of corporate governance are changing.   Here are seven trends that will determine the banking market in the coming year:

1. Ecosystems and super-apps

The idea of ecosystems has been around for several years. Sberbank became the pioneer of this philosophy several years ago, buying, launching and integrating non-banking services into banking services. This year, banking ecosystems became one of the topics at the St. Petersburg Economic Forum. The banking community split into two parts. Some people believe that ecosystems are the only way for the sustainable development of the banking business. Others are convinced that non-banking services will not bring tangible profits to banks, but defocusing will lead to a decrease in the effectiveness of the core banking business.

Next year we will see many experiments by banks with non-banking services and trying prototypes of super-apps of varying degrees of maturity. Banks have 2-3 years to understand through trial and error the viability of this business model, abandon false hypotheses and save everything that will make money.

2. Decrease in the retail loan market

Next year, experts who were worried about overheating of the retail loan market will breathe calmly. The portfolio growth rate will not exceed 10%, and the volume of disbursements will remain approximately at the level of the current year. By the middle of the year, market participants will finally adapt to the new rules for regulating the maximum debt burden. This process will not be painless for everyone.  

3. Mass investments

Lower deposit rates and democratization of brokerage services created the preconditions to  a boom in the mass investment market. Today, a depositor can become an investor just in  10 minutes. To do this, just download the mobile application, open a brokerage account remotely and replenish this account for a small amount - for the first experiments, 10,000 - 20,000 rubles are enough. This is almost a revolution, which will change the rules of the game in the market for attracting funds from a mass client with savings of several hundred thousand rubles. In 2020, the overflow of funds from deposits to brokerage accounts will become a significant factor affecting the funding structure of banks.

4. Lending to small businesses

The need for small businesses in loans is huge, and their availability is very small. This imbalance arose due to the fact that banks were not able to put small business lending on scoring, like in the retail lending. This is due to the fact that the companies were not transparent due to double-entry bookkeeping, and   the expertise for the express assessment of the company's creditworthiness was not formed.

But in 2020 the situation is likely to change. Firstly, the Federal Tax Service strongly motivates small businesses to leave the shadow.  Assessing the reliability of a borrower may become simpler with official reporting. Secondly, lending to small businesses is the only segment that has the potential for growth of 20% or more. This is where banks can redirect resources from the  retail lending market.

5. Price competition in the credit card segment

The decrease in rates affected all retail segments, with the exception of one - credit cards. Rates on them are fantastically high for January 2020 at a level of 25-35% per annum.

Credit card holders are insensitive to rates. From December 2016 to December 2019, the minimum mortgage rate index calculated by Frank RG decreased from 12% to 8.4% (-30%), for car loans - from 14.4% to 10.5% (-27%), for cash loans - from 18.0% to 11.8% (-34%). And for credit cards over the same period, the minimum interest rate index fell by only 3 pp, from 24.7% to 21.8% (-12%). But competition in the card market is very high and continues to intensify. Therefore, one of the banks may begin to use a low rate as a good reason to stand out from competitors. And it will start a price war on the cards.

6. Giving up plastic cards

Payment by phone has taken root in the Russian market. The share of so-called tokenized transactions is growing. And in 2020, banks will actively offer customers the issue of cards   in a virtual form, without a physical medium. In large cities, the infrastructure for receiving such payments seems ready for this.

7. Insurances control

The Central Bank   plans to put things in order with insurance products that are sold in conjunction with loans. Plans to introduce new regulations on credit insurance have been postponed several times.

In 2020, measures can be taken to limit the income of banks from these insurance products. The first sign is the law that allows the borrower repaying  part of the insurance premium upon early repayment of a consumer or mortgage loan, signed by the Russian President at the end of 2019.


Author: Anna Dorozhkina

Tags: Russian banks Russian economy    

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