On June 7, 2018, the Bank of Russia expert team prepared a report addressing major changes in the Russian banking sector throughout the 2008-2017 decade, as well as the impact of these changes on the stability and the competition environment among the country’s banks.

Banking sector assets grew at fairly high rates both in absolute and in relative terms. This trend occurred in parallel with the overall improvement in the quality of governance, a development that helped boost operational efficiency in the banking business. The Russian banking sector is working to restore its crisis-hit stability at a time when fair competition between banks was strengthening alongside improvements in the quality of banking services. Based on the analysis of key figures on the balance sheets of banks that had their licenses revoked, supervisory assessments have become more conservative with a faster supervisory response to the banks’ operating drawbacks.

Global benchmarks show that Russia remains at a lower medium level in terms of banking sector concentration. The report’s authors note that an overall decrease in the number of structural banking divisions per capita that took place in Russia is generally aligned with global trends.

A separate risk factor for the banking sector arises from credit institutions’ reliance on the so-called “captive model” that results in the banks’ losing stability. The recorded decline in the share of captive banks in the Russian banking business favors the sector’s stability, competition, and future development.

The banking sector is set to face new challenges in the next 10 years. Banks and their customers will have to further adjust to sustainably low inflation and positive real interest rates. Low inflation should result in higher competition among banks and more cost-cutting.

Future challenges for the banking sector over the next decade will be the result of sustainably low inflation and positive real interest rates, as well as risks with respect to the development of financial technologies.