– What is the purpose of the association and what has it done since its foundation in 1991?
– The purpose of the RBA is to protect the interests of banks and improve the law provisions that are good for developing the banking system. As a rule, these law provisions are proposed by the Central Bank, the executive power and other regulatory bodies. They do their work with the help of the legislative power. But usually the approach of state bodies differs from the approach of the market. If you work and see that there are shortcomings in the legal field, you shouldn’t hope that the legislative branch will work those shortcomings on its own. This is the reason why the strategic goal of the RBA is to protect the global rights of the market sellers and RBA members. But in spite of this, it has its internal logical structure. In the beginning, it was very important to unite the participants of the market in order to enable them to form an institution, which is important for their general development because all banks have their own interests separately and sometimes the interests of some of them may be out of the general interests of those put together. We should take care of the interests of the system put together, otherwise if legal provisions are adopted on the basis of the interests of only one participant or a small group of participants, the market will not develop effectively and sometimes it may be monopolized. That is why in the beginning phase it is very important to teach all the participants to “speak in one common language only”.
– Are banks the only RBA participants?
– No, there are other organizations in the association too and they are connected with banking activities. But these organizations don’t play a key role. Currently the RBA has 682 members, of which 547 are banks.
– What are the current issues facing the bank system?
– Capitalization. Russia is a very big country, but the gross capital of the Russian banks is less than that of many other countries, even less than the capital of some separate banks, which I think is not a good thing. Russia’s GDP is almost the same as that in the Czech Republic and Ukraine, and often it is less than that of Germany and the U.S.A. But in spite of this, Russia is the biggest country of the world and has many mining resources. Usually the reason for economical degradation is the financial degradation. With the purpose of developing this field, we have worked on a project called “Russian Banks’ Development Program”. Banks have another problem too, which is long money, they need this to provide long-term credits, for instance for 10 years, but not short-term credits for 3 or 5 years like we have now. Currently over 80% of our credits provided are given for less than 3 years, 70% of which have 1 year coverage period. This is not good, because our resources have to do with long money, which is dangerous for national security. Being involved in different political institutions, people should understand that they can’t just rely on the state. All citizens must worry about that, and they must also make the authorities worry about that if they don’t understand themselves. In order to make this all a reality, we need long-term resources and investments. This issue is also connected with the development level of the banking system, which is the basis of almost all fields of Russian economy. This is a very important issue for Russia, but I don’t think it’s less important for Armenia either. The state can’t develop if all its parts are not supplied with financial “blood”. For example, there are communities in Russia living 100-200 kilometers away from the nearest bank. How can people do business? People need bank services every day.
– What kind of solutions do you have for this problem?
– We have made many recommendations with the help of MPs. Some of them have also applied legal force. For example, we have come up with many recommendations for the law on mortgage and the relevant judicial proceedings. As a matter of fact, Armenia is more developed in this field because there is no term in Armenia such as “debt prison”. In Armenia, when people don’t return their borrowings, they are punished strictly. But in Russia we can’t force them to prisons. The Russian legislation doesn’t even give an opportunity to sell the mortgage property easily. Let’s bring up an example: if I have given you a loan and you have given me a mortgage property, until you don’t return the loan, I can’t sell the property directly and I will have to fall into difficult proceedings until I get permission for selling that property. In other words, we are working on solving such problems with the help of law.
– What do you think about the fact that in many countries of the world central banks are the only regulators of all financial institutions of the country, i.e. the mega-regulator?
– I think that the responsibilities of the Central Bank should be divided between emission, control bodies and the other body occupied in regulatory activities, i.e. licensing, management of exchange rates, etc. Otherwise we get a paradox, where the same body issues currency, functions in the open market and controls the financial field at the same time… Of course this is very bad. In Russia it doesn’t concern the general regulation, because this problem is not solved there either. There isn’t any mega-regulator in our country. Banks and financial insurance markets are formed by different bodies in Russia. But we have problems like Armenia, I mean when there are proceedings in the Central Bank, which contradict each other. In many countries these functions are divided under one system. I think they should try to do that, but be careful in the meantime. If there are mutual contacts with civil society, I think this can be achieved if done carefully and well-thought. In our countries, I mean in post Soviet countries, there is one side that has a totalitarian, logical mentality and governance, but what’s missing is the necessary contact with the people. For instance, Russian police are currently working out new criminal and traffic laws. In a country where the legislative branch is preparing some laws, they shouldn’t let the body responsible for applying that law even approach the legal draft because the bodies that are responsible for setting the legal provisions think about their own interests first. For example, recently the U.S. was making new military legal reforms and there wasn’t anyone representing the military services of their country in the commission, and I think this is a right policy.
– The Armenian CB is going to announce the names of the banks that are violating the relevant legal norms, as well as information about the sanctions made by the supervising body. What do you think about this?
– I have good impressions of the Armenian CB, but everything is relative. However, this still doesn’t mean that I agree with everything that the CB may say. I am not well-informed about the policy of this institution, but I see that there are very good, progressive developments here. What you are asking about concerns the transparency of banks. If there are civil norms and market participants, and some of those participants are periodically violating the norms, I think it is good and logical to announce information about those violations so as to make the process transparent, even more when the Armenian banking system is very compact. There aren’t so many banks in Armenia as in Russia. I think it is good to tend to make their activities more transparent. I can’t criticize or agree with the CB policy now, but when it comes to norms, I think it is better to make the system more transparent. But please don’t think that everything is done the best way. I think that there are still shortcomings in the system. I think that when the contact between the self-regulation and the regulating body is weak, it means that the regulator cannot do everything the best way. As for Armenia, as far as I know the associative influence and relative influence on decision making processes is not developed enough.
– Do you think that these norms should be the same for all banks?
– Norms are a very good, regulatory tool. On the one hand it is clear that these norms can’t concern only some of them. But on the other hand it will be wrong to assume that it is impossible to apply diversified norms. For example, if you have to develop the agricultural field, you can work out norms for only this field particularly with the purpose of leading to its development (low level of reserves, refinancing, etc.). This is the reason why the systematic method of norms is considered better than the other one.
– What is the reason that trade banks provide less trade credits than consumer credits?
– Armenia and Russia are alike from this perspective. As soon as a market is starting to develop in Russia, the same happens in Armenia as well. If banks are giving more consumer credits than trade credits, we have to look for reasons for that. Banks are not to blame, this is the fault of some economical criteria, some of which I mentioned above. It is evident that banks don’t have long-term resources, as for the credits, they provide credits for different terms. Besides that, it is easier to give consumer credits to citizens because they have concrete details, i.e. passports, addresses, etc. As for juridical persons, they may disappear from the market unexpectedly. At the same time judicial processes are very difficult as well. Providing consumer credits is a good business. People don’t have enough knowledge on “credit proceedings” yet. They take consumer credits without thinking about how they are going to return them. We should look for the reasons in market regulations. I am always surprised to hear such expressions as “banks are bad because they don’t provide credits for businesses and construction”. Give resources to banks, and they will do that for sure. If the citizen applying for credits is trustworthy, banks will give him/her credits for sure. For instance, there is a serious problem in Russia; this is the trust to citizens that want to take credits. This is the reason why we founded a national bureau of credit history, which collects information about the citizens that take credits and where they go later. Banks are afraid to lose their good clients. This means that banks compete for good clients.
– Was this bureau founded by your association? Besides that, we know that the CB of Armenia has founded a credit register body too.
– Our association didn’t found that bureau; it just was the initiator of the foundation of that stock company. The bureau currently has 33 stock holders, most of which are trade banks. These stock holders have signed over 520 contracts with other banks. As for Armenia, the Central Bank did it well because I think that due to their efforts, they now know those citizens that haven’t fulfilled the requirements stated in the agreements. This process was more complicated in Russia. Our CB thought that we would not be able to found such a bureau and wanted to take this field all for itself. But I think that we, the banks association, were able to carry out that project and we expect it to be successful.