Page 66 - RUSRptOct18

In the first half of 2018, banks received a record volume of agency fees from life insurance products at RUB29.5bn ($449mn). Banks are making record profits by selling unregulated investment products, in this case namely life insurance policies structured as medium-term investments without a fixed yield. Doing so helps banks earn despite lower interest rates (around an average max of 6.65% annually). The combination of premiums being paid to insurers and uncertainty over returns for consumers will hurt millions without clearer legal protections. The CBR has approved suggestions regarding transparency from the All-Russian Union of Insurers, but such investment instruments have yet to penetrate the pension insurance market. As rates decline, banks have begun actively selling investment products to consumers. Guaranteed investment life insurance policies are a favored option. The commission earned by banks in 1H 2018 was a third higher than during the same period last year. The commission earned specifically on life insurance investment products was 1.5 times higher. During 2Q18, insurers, via banks, received RUB179bn ($2.7bn) in life insurance premiums, of, which RUB160bn ($2.4bn) came from guaranteed investment policies. A year earlier, these figures were significantly lower—RUB120bn ($1.8bn) and RUB105bn ($1.6bn), respectively. With such a large growth in consumer investments, experts naturally fear massive violations in consumer rights. They expect stronger market standards on the sale of financial instruments to be introduced shortly.
Financial organisation selling complex derivatives to large corporate clients should "record the sales process" to shield themselves from possible claims in the future, according to the deputy head of the Central Bank of Russia Sergei Shetsov, as cited by Tass on September 25. This year the CBR had to interfere as Russian monopoly pipeline operator Transneft won a court decision and won a $1bn claim against state-owned bank Sberbank in a disputed derivative contract that sent shockwaves through the financial system. The story lead to all Russian banks and companies to look at the whole process in detail. "The financial intermediary is the strong side of the argument and thus should be proved in court that everything was sold correctly: the video recordings, the phone call, the documentation are all important," Shetsov argued. Transneft lost RUB67bn ($1.1bn) rubles in a derivatives deal with Sberbank earlier this year in a bad currency bet, but managed to have its obligation to pay annulled by the courts. The court ruled that the RUB67bn was an "excess profit" for Sberbank, which ought to be compensated, as the company had no means to evaluate the possible outcomes of the deal. Sberbank and the central bank have said that a court decision that can annul derivative contracts set a dangerous president that undermines the stability of the financial sector.
Russia will prolong discounted mortgages at 6% interest for families
with two or more children to at least 2024, RIA Novosti reported citing the office of the deputy PM Tatyana Golikova. The mortgage interest rates continue a stable downward trend that is fuelling the recovery of residential real estate market in April 2018 dropping by 2.01pp to 9.68% as compared to 2017. In addition to the overall lowering of interest rates in Russia, in the end of 2017 the government has adopted a program of subsidy-discounted mortgages for large families. Previously the government subsidised all mortgages with rates over 12% to boost construction and promote homeownership. Now the tool is being used in a more targeted fashion to support specific social economic groups like families with lots of children. The discounted mortgages have now also reportedly been added to the
66 RUSSIA Country Report October 2018 www.intellinews.com