The Russian financial system, despite its recent rapid growth and certain legislative development, still has not reached its potential due to substantial state presence. The state players Sberbank and VTB still dominate the retail market whereas major international banks account for 15-17% of the system’s assets and are only looking to grow their commercial and trade operations in Russia.
As of April 2013, there are 955 operating credit institutions, comprising 895 commercial banks and 60 non-banking credit institutions. Russia’s banking system is worth around 50 trillion roubles ($1.6 trillion).
Non-banking sector (investment funds, insurance companies, private pension funds) is rather small yet it has demonstrated steady development over the past few years. The Russian insurance industry remains attractive. Life insurance is the fastest growing segment today with its share in the total voluntary insurance market rising from 5% to 8%. Motor, property and voluntary health insurance are also growing. The 10 leading insurance companies control about 45% of the insurance market and are highly diversified in all segments.
At the end of 2012 a single nancial mega regulator in Russia was created when the government agreed to integrate the Federal Financial Markets Service (‘FFMS’) with the Central Bank. It is expected that this initiative will help improve transparency and effectiveness of regulatory oversight of the entire nancial services market.
The legal services market in Russia, which is currently one of the few legal markets worldwide with minimal regulation governing legal practice, is burgeoning. With legislation becoming more sophisticated and a larger number of transactions being ruled by English Law, international firms, primarily British, are very much in demand especially in areas such as international financing and M&A.
The Russian market opens up a wide range of commercial opportunities for British firms across the sector:
Banking – Russia is in need of more efficient banking practices, in particular on lending priorities, risk management, data processing and insolvency rules.
Legal Services – in the context of M&A Activity, privatisations, dispute resolutions, litigation and arbitration expertise in English Law is in greater demand.
ETQ – with the increased business activity and strengthening of the regulatory regime UK expertise in provision of international professional certification is very much in demand.
Insurance & Pensions – The reform of the insurance & pensions industry is a key concern for the Russian government. There is an opportunity to showcase UK experience and expertise particularly in private sector pensions.
PPP – given the major infrastructure projects planned for the next decade the Russian government is keen to develop PPP projects. There is an opportunity to showcase UK experience and expertise.
Getting into the market
According to the Russian legislation foreign credit organizations wishing to do business in Russia can either set up (or purchase) a Russian legal entity or open a representative office. The latter presupposes performance of a limited range of functions which exclude any entrepreneurial activities. Foreign credit organizations are prohibited from acting via their branch network in Russia and are to choose one of the abovementioned options.
Credit organizations are subject to accreditation and licensing by a relevant authority. There are also minimum capital requirements for banking and non-banking entities (banks RUB 180 mln (2012), insurance companies RUB 120 mln (2012), private pension funds RUB 50 mln).
In compliance with the new Russian Insurance Law adopted on 23 July 2013, Russian insurance companies with more than 51% of foreign investment cannot participate in state funded insurance, in life insurance and in compulsory motor liability insurance.
However, recent relaxation of foreign capital quota (from 25% to 50%) presents a solid ground for the entry of new foreign players. The quota is determined by a ratio of total capital owned by non-residents in entities with foreign investments to the total capital of entities registered in Russia and operating in the sector.
The total share of foreign capital in the Russian insurance sector is roughly 20% which is USD2-2.5 billion.
Market intelligence is critical when doing business overseas, and UKTI can provide bespoke market research and support during overseas visits through our chargeable Overseas Market Introduction Service (OMIS).
To commission research or for general advice about the market, get in touch with our specialists in country – or contact your local international trade team.
UKTI runs a range of events for exporters, including seminars in the UK, trade missions to overseas markets and support for attendance at overseas trade shows.
Lord Mayor visit to Russia
29 June – 2 July 2014