Business plans should be subject to the supervisionThe role of assessment business planning in the area of banking supervision needs to be dramatically changed. // Mikhail Sukhov, a member of the Board of Directors of the Central Bank, Bank review, No. 10, October 2009

Over the past year, we have seen that together we can rebuild the legislation and regulatory environment for the solution of many problems of the banking sector. At the same time, the crisis pointed to some still unresolved problems.

In particular, and in international and Russian systems of banking supervision disproportionately little attention is paid to the aspect of business planning in banks. For example, we found that almost all troubled banks huge amounts of money consistently invested in industries that were severely affected by the crisis. In this case, the supervisor had the opportunity to operate only when the external signs of crisis in the Bank.

Of course, we have the ability to assess the risks of those or other banking intentions, but clearly not enough response. The more that we see: in cases where response capabilities are still there, they are quite effective.

The ability to respond right now, we have two situations.

First, based on the evaluation of the business plan we may deny the Bank to expand their business or to deny the creation of the new Bank. During the existence of an appropriate regulatory framework, the Bank of Russia refused to extend the activities of 88 banks. When you do this 16 times, we proceeded from an unsatisfactory evaluation of the business prospects of the Bank, of which in recent years was one or two such cases.

For the entire period we also rejected the creation of 33 new banks. Of them in twenty cases, the motive was the fact that the founder does not have a satisfactory intention to develop the business. In recent years for this reason, there have been five failures.

Certainly, assessment of business planning should not be a daily tool of pressure on banks. The lack of a coherent business plan is a good litmus test, identifying early on those banks that do not have prospects for serious commercial activity.

The second possibility, which we actively use, — is an assessment of the business planning the procedure of restructuring of the banks. Together with the Agency on insurance of contributions we approve the plans of the Bank’s activities for the period of financial recovery. The Bank of Russia has approved developed by the Agency together with the investor plan in 10 cases out of 15. In all cases we have detailed business plans of banks for the next two-three and five years. This creates additional confidence that public money towards the redevelopment will be used properly.

In addition, such methods allow us to reduce the state funds that are allocated to the redevelopment, because we see in the business plans of compensation for the losses suffered today at the expense of future earnings of the reorganized Bank.

I believe that the assessment of business planning in the short term can and should be a compulsory element of the work of the Supervisory authority with commercial banks. No one is questioning that the Central Bank determined the activity of banks. But we should be able to adjust the activities of the Bank so that it did not come in dead-end directions.

Moreover, the adoption of the relevant decisions will allow you to create more tools to work with, what I call, not banks, and tin cans. Banks, having formally liquidity, formally having a small balance, but not having any real business. The attitude to this kind of banks we unequivocally negative. We should have an additional tool to restrict the activities of such banks before their licenses were to persons who are engaged in unfair banking operations.

Opponents may try to argue, but whether it is expedient to raise the question of evaluating the business strategy of banks in the conditions, when banking activity is actually frozen? I believe there are true signs that the banking activity may soon recover. For example, the network of internal structural divisions of banks responded to the crisis to a much lesser extent than the volume of banking operations. Over the last six months the number of service points decreased by 1.4%. This may mean that banks generally retain their points of presence for the future development of retail. Well, it’s also an element of business planning, which in this situation may merit a positive assessment.

Signs of a possible and expected in the banks themselves, notable and revitalizing the intentions in the sphere of associations of credit organizations. We know about the resolve of the seven banks to implement the accession of ten banks by the end of this year. The main motive — is cost savings, which is also a part of business planning and the response to the crisis.

Finally, there are a number of lines of business, to which there is a high interest. For example, the number of banks controlled by non-residents according to our estimates, in the near future will grow — mainly due to the subsidiaries of automakers. We already have three such Bank, and by the end of the year or early next year, possibly adding two more subsidiary credit institutions controlled by the automakers. They say that in Russia there is a positive business environment for the development of this form of banking. Naturally, such decisions are made again on the basis of business planning. In addition, to spur this process may bill on registration of rights of pledge on vehicles with auto loans, which, I think, should be more actively considered.

So even in the crisis business planning, on the one hand, an indicator of the Bank, and on the other — the signals in many cases the beginning of a recovery in the banking market.