1. Developing Health Financial Sector in Emerging Markets
Vladimir TOMSIK
Vice-Governor, Czech National Bank
International Financial Congress:
The Future of Financial Markets
St. Petersburg, June 30 – July 1, 2016

2. Stable and profitable banking system,
Introduction
Following “Guidelines for Development of Russian Financial Market in 2016—2018”, the Bank of Russia seeks to:
Promote financial market instruments,
Facilitate debt and equity financing, and risk hedging, and
Create conditions for financial sector growth …
… THROUGH …
Stable and profitable banking system,
Sound financial regulation and supervision, and
Financial consumer protection and financial literacy.

3. Czech and Russian financial sector – stylized facts.
Introduction
Czech and Russian financial sector – stylized facts.
Can we share our experience mutually?
What our experience is developing:
Market based banking sector,
Sound supervision and regulation, and
Consumer protection and literacy.

4. Financial Sector – – Stylized Facts the Czech Republic and Russian Federation

5. Bank Dominated Financial Sector in Both Countries
Source: BIS data and Financial Sector Database of the World Bank
Czech Financial System in 2015, shares in percent
Source: CNB

6. Financial Depth Converging to Advanced Countries
Source: World Bank, Financial Sector Database
Source: BIS

7. Lessons learned and challenges
Building Health Financial System
Lessons learned and challenges

8. A) Transformation to Market Based Banking Sector
Transformation from “mono-bank” to a market based banking system.
Banking sector crisis in both countries although different factors behind.
Czech case: A large number of small banks sought to get a market share but at the costs of going beyond the prudent threshold.
Russian case: Economic slowdown, fiscal deficits, Asian financial crisis.
Czech experience:
Total consolidation costs estimated about 25 percent of GDP by Bárta and Singer (2006).
However, a large part of the costs related to bad loans provided during the former regime.

9. A) Transformation to Market Based Banking Sector
Czech Republic: Reforms, privatization based on high participation of foreign (Western European) banks, and strong bank supervision applied.
Russia: IMF program, bailout, and strong bank supervision. Only a mild increase in foreign bank participation.
Note: Baltics—EST, LVA, and LTU. CE5—CZE, HUN, POL, SVK, and SLO. CIS—BL, MDA, RUS, and UKR. SEE EU—BLG, CRO, and ROM. SEE xEU – ALB, SRB, BIH, UKV, MKD, and MNE.
CZE
RUS
Source: International Monetary Fund, Years of Transition – Post-Communist Europe and the IMF. Regional Economic Issues – Special Report.

10. A) Transformation to Market Based Banking Sector
Both countries resolved the banking crisis successfully measured by NPL.
Foreign banks have brought know-how and substantial improvement of performance in the Czech case.
Source: World Bank, World Development Indicator Database

11. A) Transformation to Market Based Banking Sector
Map of EU Member States where state aid was provided to the financial sector in 2008–2014 (in red)
Czech case:
No public support/aid in the crisis as the banks remained resilient.
The Czech Republic did not joined the Vienna Initiative.
The crisis did not significantly shift intragroup lending – Czech banks remained net creditor in cross-border interbank lending.
False believe that financial integration has made banks more prone and vulnerable to external shocks.
Source: European Commission. Customizable map:

12. B) Sound Supervision and Regulation
Both central banks operate as a single supervisory authority of the financial market.
The CNB as a single supervisory authority since 2006.
The Bank of Russia has become a single regulator in September 2013.
The creation of a single regulation institution seeks to minimize systemic risk and to improve the protection of investors and depositors.
Many developed countries have united their regulators to avoid issues associated with insufficient and fragmented regulation spotted by the 2008 crisis.

13. B) Sound Supervision and Regulation
CNB’s experience with a single supervisory scheme is positive – mainly advantages of additional synergic effects.
Easy day-to-day communication + information-sharing synergies.
Easier communication with supervised entities, foreign supervisors.
Stronger position in the crisis situation.
Enables to monitor the whole financial market (financial stability perspective).
Ability to analyze the impact of development in one sector to other sectors or to the whole economy.
Strong technical and professional support.
Unification of reporting formats and supervisory techniques for different sectors where suitable.

14. B) Sound Supervision and Regulation
Ongoing international regulatory reform – Basel III.
Russia/Bank of Russia is a key international partner shaping the design of the reform as a member of:
Financial Stability Board
Basel Committee on Banking Supervision
G20
The Czech National Bank also actively contributes to the reform effort through its membership:
Basel Consultative Group
European Banking Authority
European Systemic Risk Board, etc.

15. C) Consumer Protection and Financial Literacy
The document “Guidelines for the Development of the Russian Financial Market in 2016—2018” claims rather low household activity on the financial market outside of commercial banks.
Similar case in the Czech economy – financial wealth mainly in deposits.
Financial literacy and consumer protection might help.
To what extent and what specific rights of financial consumer should be protected?

16. C) Consumer Protection and Financial Literacy
CNB is obliged:
to receive and deal with suggestions by consumers and their associations;
to supervise compliance with new obligations;
to avert any immediate danger to a consumer’s property by suspending the provision of services or by closing business premises;
to impose corrective measures and penalties.
No price or interest rate ceilings – the CNB makes sure that costumers are well informed in advance.

17. Summary

18. International coordination important in
Summary
Prudent regulation and supervision as a key for sound financial system.
International coordination important in
Designing sound and prudent regulatory framework and
Sharing experience.
Positive experience with integrated supervisor – significant synergic effects.
Adequate attention to financial literacy and consumer protection.

19. Thank you for your attention
Vladimir TOMSIK
Vice-Governor of the CNB