Satisfaction level: 8%.

The entire course of the formation and development of banking activities in Russia shows that asset quality is the main risk borne by banks. The latest data show that the situation in the banking sector of the Russian Federation is characterized by an external improvement in asset quality. According to bank estimates as of 1. 04. 2003, only 1.9% of loans (from the total volume of loans granted to enterprises, organizations, banks and individuals) are overdue and 3.9% of loans are classified as bad. At the same time, as evidenced by estimates conducted using stress testing tools, the core of the Russian banking sector is capable of withstanding a negative macroeconomic impact similar to the 1998 crisis, even after incurring financial losses.

In addition, experience shows that it is the accumulation of problem assets that is the main reason for the bankruptcy of banks, and the difficulties in their implementation lead to a low degree of satisfaction of creditors' claims in the process of liquidation of credit institutions. I will give some statistics.

For credit institutions excluded from the State Registration Book in the period from April 1, 2001 to April 1, 2003 (a total of 374 banks), the book value of assets on the date of license revocation was 104.8 billion rubles. During liquidation procedures, assets worth 7.7 billion rubles were recovered (sold), which is only 7% of the book value of assets on the date of license revocation.

The results of work with problem assets are characterized by the following:

- securities and discounted bills of exchange - out of 15 billion rubles, 449 million rubles (3%) were recovered;

- loans issued to enterprises and organizations - out of 46.5 billion rubles, 4.6 billion rubles were recovered (10%);

- loans issued to individuals - out of 486.7 million rubles, 87 million rubles were recovered (18%);

- loans issued to credit institutions and funds in correspondent accounts in correspondent banks - out of 9 billion rubles, 323 million rubles (3%) were recovered;

- overdue interest on loans provided - out of 5 billion rubles, 216 million rubles (4%) were collected;

- other assets - out of 24 billion rubles, 680 million rubles (6%) were recovered.

As a result, as of 1 April 2003, the overall degree of satisfaction of recognized creditors' claims was 8% (thanks to the priority established by law, 78% of recognized claims were paid to depositors). There are several reasons for this state of affairs.

Legislation is powerless.

Without the use of International Financial Reporting Standards (IFRS), the valuation of assets in bank statements is not fully adequate to reality, which ultimately becomes clear when a liquidator or bankruptcy trustee takes up the case. The situation is further aggravated by the fact that in many cases the debtors of a bank whose license has been revoked are legal entities with empty balance sheets or organizations experiencing financial difficulties. Cases when liquidators or bankruptcy trustees manage to achieve the termination of transactions concluded by the previous management through the courts that caused damage to the bank are extremely rare. The problem is that general civil legislation in many cases turns out to be powerless when faced with the classification of transactions that cause damage to banks as fictitious or void.

The situation is complicated by the dishonesty of individual bankruptcy trustees. Unfortunately, transactions that result in the sale of assets at non-market prices often fall within the framework of our legislation. It is difficult to establish the liability of persons carrying out liquidation for delaying filing claims in court in order to miss the statute of limitations and for many other not entirely conscientious methods of working with assets.

At the same time, it would be wrong to explain the poor results of working with bank assets during liquidation solely by the dishonesty of former bank managers or liquidators. Effective work with problem assets can only be carried out if there are a sufficient number of market agents who would invest funds both in improving the quality of assets and in trading them. Such investors exist, but there are still very few of them, and the high risk of investing in this business suggests that investors only really participate in projects with high profitability. Ultimately, Russia needs a professional segment of businessmen who conduct legal business in the field of working with problem assets.

In our opinion, without changing the situation in the area of recovery of problematic bank assets, it will be extremely difficult to restore confidence in the banking sector. We should talk about implementing a set of measures aimed at improving the quality of bank assets and including:

- firstly, strengthening banking supervision, including ensuring an adequate assessment of the quality of assets in banks’ reports and increasing their openness to interested users through the introduction of IFRS;

- secondly, changes in the bankruptcy procedures of credit institutions aimed at improving the quality of work with assets in the interests of creditors, by creating the institution of a corporate liquidator and assigning these functions to the state corporation “Agency for the Restructuring of Credit Institutions”;

- thirdly, changing the institutional environment for working with problem assets, including the creation of firms that invest in improving the quality of assets, as well as credit bureaus.

Current tasks.

Let me focus on specific aspects of the work in each of the three areas.

First. We believe that the most urgent task now is to prevent banks from investing in poor-quality assets and to create mechanisms for their timely identification. In the near future, the Bank of Russia will take measures to create a regulatory framework based on the presentation of financial statements in accordance with IFRS. The most important instructions in this regard - on the procedure for assessing assets and forming provisions - are currently being discussed with bankers.

The quality of bank capital is already at the center of our attention. A study of the situation in many banks shows that assets of dubious quality arise in many cases when they pay for authorized capital. We intend to conduct substantive and serious work with each of these banks, their managers, and participants. We are ready to give the bank a chance to improve, but for the most dishonest there are administrative levers of influence, including revocation of the license. Already this month, the Bank of Russia Banking Supervision Committee will consider the first cases of using improper assets to pay for authorized capital.

At the same time, it is necessary to clearly understand that, no matter how perfect the instruments of the Bank of Russia's supervisory response are, the guarantee of a bank's financial health is the integrity and professionalism of its managers and owners. Unfortunately, the most common cause of bankruptcies in the Russian Federation in recent years is operations to deteriorate the quality of bank assets in the interests of individual managers and owners. In this regard, a guarantee of a low probability of new problems is the conscientious business reputation of managers and participants, the lack of interest in solving their problems at the expense of the bank's creditors. Therefore, a tilt of supervision towards assessing the quality of corporate governance is an objective need.

The second area of work is the improvement of the legislation on insolvency (bankruptcy) of credit institutions. The main ways of solving the existing problems are seen in replacing private individuals engaged in the bankruptcy of banks for the purpose of extracting profits with the state corporation "Agency for the Restructuring of Credit Institutions", which is a non-profit organization, as well as increasing the transparency of liquidation procedures.

In order to solve these problems, in December last year the State Duma of the Russian Federation adopted in the first reading a bill on amendments and additions to the Federal Law "On Insolvency (Bankruptcy) of Credit Institutions". This bill will allow to fully solve the current problems of protecting the interests of creditors and depositors of banks during bankruptcy procedures, as well as eliminate conflicts of legislation that arose after the entry into force of Federal Law No. 127-FZ of 26.10.2002 "On Insolvency (Bankruptcy)". The Bank of Russia takes part in the working group created in the State Duma Committee on Credit Institutions and Financial Markets. At the meeting of the State Duma Committee on Credit Institutions and Financial Markets of 21.04.2003, a package of amendments to the Federal Law "On Insolvency (Bankruptcy) of Credit Institutions" was recommended for adoption in the second reading.

The draft federal law proposes to fundamentally change approaches to bankruptcy management in credit institutions. This area of activity is transferred from the area of private entrepreneurship almost entirely to the public-law sphere, since the main liquidator of credit institutions with a revoked license will be the state corporation "Agency for Restructuring of Credit Institutions".

The procedures for bank insolvency envisaged by the bill are intended to eliminate the conflict of interest between the bankruptcy trustee and creditors during bankruptcy proceedings, since the state corporation "Agency for Restructuring of Credit Organizations" functions as an institution and does not aim to make a profit.

The mandatory liquidation under the control of a state corporation, as provided for by banking legislation, will stimulate market discipline in the financial and banking sector.

The implementation of the concept laid down in the draft law is fully consistent with international experience in regulating bankruptcy, which convincingly proves the need for specific bankruptcy procedures for credit institutions. The assignment of responsibility for conducting bankruptcies to the Agency is also important from a social point of view as a measure of additional control and responsibility of the state for protecting the interests of private depositors who have placed deposits in banks. In this regard, narrowing the scope of private business in the implementation of bankruptcy, transferring bankruptcies of banks that attracted deposits from the population to the public-law sphere seems justified.

Currently, discussions about the necessity and possibility of assigning the functions of a corporate liquidator to the state corporation "Agency for Restructuring of Credit Organizations" continue. Opponents of this idea talk about a possible conflict of interest in the Agency's performance of the functions of a bankruptcy trustee, about the low efficiency of the state as a market agent. We do not share these concerns. Bankruptcy of a credit institution cannot be considered as a business from the outset. Its goal should be to maximize the satisfaction of creditors' claims. Therefore, the conflict of interests of a private bankruptcy trustee between the goals of making a profit and satisfying creditors' claims is in many ways more material and significant than potential problems associated with the activities of the state corporation "Agency for Restructuring of Credit Organizations". We believe that the choice should be made in the interests of creditors.

Let me remind you that in 2001-2003 private business managed to collect 7% of assets in the bankruptcy estate of banks. This figure shows that the involvement of private business in the bankruptcy of banks is already leading to the fact that the main part of assets is being sold, bypassing the bankruptcy estate, in the interests of bankruptcy trustees and narrow groups of creditors.

Finally, the last topic is the activation of market institutions for identifying and working with problem assets. De facto, a market for working with problem assets exists in Russia now. The problem is that in many cases, banks' debtors are quite respectable borrowers. For them, the bankruptcy of creditor banks is a chance to reduce their debt, which, given the lack of transparency in asset sales procedures, in many cases coincides with the commercial interests of the current bankruptcy trustees.

The task of bringing the market for work with problem assets out of the shadows and attracting serious investors is on the agenda. In this regard, the possibility of such an institution as the state corporation "Agency for Restructuring of Credit Organizations" entering this market, envisaged by amendments to the Federal Law "On Insolvency (Bankruptcy) of Credit Organizations", may be to a certain extent a catalyst for investors' intentions. No less important is the study of international experience in organizing business with problem assets.

MAIN QUESTION: We can withstand the crisis, but there is a danger