Page 68 - RUSRptOct18

deposit holders Sberbank, VTB, and Rosselkhozbank all listed in the US Congress bill potentially banning US dollar transactions.
The new federal pension savings system – a funded pension system -- based on individual pension capital (IPK) could be launched as of 2020 , the Finance Minister Anton Siluanov said at the Moscow Financial Forum, as cited by Vedomosti daily on September 7. The government and Kremlin is moving ahead with the unpopular pension reform that tackles growing structural pension fund deficit through a retirement age hike. The reform now seems less likely to face headwinds as recent reports indicated that televised intervention by the President Vladimir Putin scaling some of the measures back managed to calm public opinion on the issue . The IPK-based pension savings system was designed by the Finance Ministry and the Central Bank of Russia (CBR) in 2016, when the government scrapped mandatory pension saving payments made by employers to the state pension fund in an effort to ease the pressure on the budget and reduce the deficit. The new system suggests to working Russians manage their pension savings themselves through non-state pension funds, with the amount of the mandatory payments increasing from 0% to 6% of the salary, 1pp annually. Pension reform has been one of the most pressing unsolved structural issue for Russia for years, with the system that could become a source of badly needed "long" investment money repeatedly compromised by the government. In 2017, the top 17 NPF in Russia managed about RUB3.5 trillion worth of pension savings. Overall there are 38 pension funds operating in Russia. However, a major quasi-state player could be introduced together with the pension savings system revamp, as Russia's state development bank Vnesheconombank (VEB) is likely to get a mandate of a pension fund . Until now, pension savings of those Russians that did not indicate any particular fund or programme, so called molchuni o r "silent" funds are automatically transferred to VEB. This made a RUB1.7 trillion portfolio ($27bn) on which the state development bank earned a return of 8.6% in 2017. This was twice as much as average 3.8% investment income of NPFs. Should the government qualify VEB as an NPF, it would broaden its investment options and is seen as a positive measure for the "silent" pensioners. However, this would mean higher competition for the rest of the market, with large chunk of total pension savings put out of reach of the private funds. Previously NPFs hoped that a long-awaited pension reform would open the "silent" savings (almost half of Russian pensioners) to the private market players.
The impact of the Central Bank of Russia (CBR) interest rate hike will be negligible on the Russian banking sector, say analysts. The CBR raised the key interest rate 25 bpts to 7.5% in September, ending a three-year downtrend amid EM currency weakness – including the ruble – and elevated inflation risk. The CBR targets CPI at 3.8%-4.2% for 2018, with marked further acceleration in 1H19 (YE19 target: 5.0%-5.5%). The regulator also noted that banking sector interest rates have started to climb. It has not unequivocally asserted if the hike is the beginning of a long-term trend or a one-off deviation from future cuts, as this will depend on the global economic performance, US sanctions, and Russian macro data. Only a rate shift of at least 100 bpts (not on the agenda in the current economic environment) would have an effect on banks’ margins and earnings growth (all else being equal), and hence the latest hike is insignificant. A material rate increase would be moderately undesirable for the banking sector short-term, as its funding has a shorter maturity than its assets and thus would reprice faster. This, in turn, would have a negative impact on the bank’s net interest income (NII) and margins
68 RUSSIA Country Report October 2018 www.intellinews.com