IWS and Entrepreneurs FINANCIAL & BANKING ASSOCIATION OF …¡айт_Вестник_2... · 2018-05-14 · of Banks of Georgia Veroljub Dugalić, General Director of the Association

FINANCIAL & BANKING ASSOCIATION OF EURO-ASIAN COOPERATION

Russian Union of Industrialists and EntrepreneursIWS

Internationaler Wirtschaftssenatworld economic council

THE FIFTHMOSCOW INTERNATIONAL

FINANCIAL AND ECONOMIC FORUM

Eurasian Unionand the EU:

search for new formatsof cooperationNovember 30, 2018

T H E O R G A N I Z I N G C O M M I T T E E

17 Kotelnicheskaya nab., Моscow, 109240, offices 400–408.+7 495 663-02-08/13/19

[email protected], [email protected], [email protected], [email protected]

THE FORMAT OF FORUM• Plenary sessions

• Breakout sessions

I секция Agribusiness: from intentions to cooperation

II секция At the speed of light — the latesttrends and changes in the environmentof financial technologies and regulation

III секция International transfer of high technolo-gies — new opportunities for Eurasianintegration

IV секция IBC Meeting «Risk assessment and itsmanagement in cross-border bankingtransactions»

BREAKOUT SESSIONS

Rajnish Kumar:

№ 2 (4) | 2018

O F F I C I A L P U B L I CAT I O N O F F B A E AC , I B C

«The possibility of financial unionwithin EAEU enhancesthe positive outlook of the region…»

Personality

4I. Lengyel Real-time settlements raise banks competitiveness

Financial forum-2018: «Financial and Banking systemof Russia: New challenges and trends»

B. PejakovićThe banking sector reform in Montenegro

А. BoldiGold Italy

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November 30, 2018

Nominations 2018: BANKER OF THE YEAR

(for personal contribution

to the development of banking

business)

STANDARD OF STABILITY(bank leader on sustainable

development, stability, holder

of international and country ratings)

TRIUMPH OF TECHNOLOGY(bank leader in the implementation

of modern IT technologies)

Prize:Exclusive author's statuette

The official award ceremony will be held on November

30, 2018 with the participation of representatives

of business, political and cultural circles, national

governments and banks, heads of trade unions and

associations, representatives of leading mass media

of the countries of Eurasia

Award«Financial and Banking

Elite of Eurasia»

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2

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Applications for participation are taken

until November 1, 2018.

Registration Form and Terms of participation

in the competition: www.fbacs.com

Organizing committee:

tel.: +7 495 6630208, 6630213,

email: [email protected] [email protected]

Organization and preparation of documentation for stock tradingConsulting on business activities and management Legal support of transactionsTrust asset managementInvestment activities

Services for the effective work of small and medium-sized businesses and their integration into the exchange system

BUSINESS SOLUTIONSСOMPLEX

www.salus.ru [email protected]


PERSONALITYR. Kumar. The best in our relations is yet to come...

FOUNDER’S PAGE. FBA EAC

RSPP NEWSFinancial forum-2018: «Financial and Banking system of Russia: New challenges and trends»

AWARD WINNERBeibut Kapyshev. From traditional banking to the digitalization of financial services

BANK. BANK. BANKD. Molomjamts. International Investment Bank goes to a new stage of its development

BANKING SYSTEM OF THE COUNTRIES OF EURASIAB. Pejaković. The banking sector reform in Montenegro

PRACTICEА. Boldi. Gold Italy

L. Камаrа. Investments and state

PARTNERS’ NEWSА. Heimonen. A week in Davos with Caspian view

Association of Belarusian Banks: Digit is priority

PROJECTIndustrial warehouse «Amega»

PHOTO CONTEST«The world through the eyes of a photographer»

MATERIAL FOR THOUGHTТ. Galander. Germany — Russia: business-gravitation remains

INVESTMENTSD. Bagla. India — a country of great opportunities

BUSINESS IN THE COUNTRIESForeign direct investments in the states of India

EXPERT OPINION I. Lengyel. Real-time settlements raise banks competitiveness

CONTEMPORARY VIEW А. Bespalov. The window of economic opportunities

FOUNDER’S PAGE. IBCAzerbaijan: Institute defending the interests of clients

CONTENT

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FOUNDERS:Financial & Banking Association of Euro-AsianCooperation (FBA EAC)

International Banking Council (International Coordinating Council of Banking Associations of the member states of the Commonwealth of Independent States, Central and Eastern Europe)

PUBLISHER:Financial & Banking Association of Euro-AsianCooperation (FBA EAC)

Editor in Chief: V. MurinExecutive editor: S. KiyatkinaEditorial Board: E. Berezovaya, O. RyazanovTranslators: S. Arkhipova, K. TereshenkoPage-proofs: «Granitsa Publishing House» Ltd.

PUBLISHER'S ADDRESS:17 Kotelnicheskaya nab., Moscow,109240, Russia+7 495 663–02–08/[email protected]

PRINTING HOUSE:Released in the «Granitsa Publishing House» Ltd.Format 210x297 mm. 68 pages.

ISSUE DATE: May 2018

PRICE: Free

The editorial office is not responsible for the content of the advertisements. Advertised goods and services are subject to mandatory certification. Reprint is allowed only with the written permission of the editorial office. Manuscripts are not reviewed and not sent back.

eurasian financial & economicHERALD№ 2 (4) | 2018

EURASIAN F INANCIAL & ECONOMIC HERALD | #2(4)-2018

Anvar Abdraev, President of the Union

of the Banks of Kyrgystan

Hakob Andreasyan, Chairman of the Union

of the Banks of Armenia

Bakhytbek Bayseitov,President of the Associa-

tion of Banks of the Republic of Kazakhstan

Oleg Berezovoy, General Director

of FBA EAC

Andrea Boldi, President of the company

AREZZO FIERE E CONGRESSI SRL

(Italy)

Yves Pozzo di Borgo, President of the

Parliamentary FriendshipGroup with Central AsiaIn the Senate of France

Alexander Murychev, Chairman of the Editorial Board,

Chairman of Coordinating Council of FBA EAC,Executive Vice-President of the RSPP, Chairman of the IBC

Zurab Gvasalia, President

of the Association of Banks of Georgia

Veroljub Dugalić, General Director

of the Association of Serbian Banks

Anatoly Kazakov, Chairman of the

Coordination Council ofthe Financial and Banking

Council of the CIS

Elena Korobkova, Executive Director of the Independent Association

of Banks of Ukraine

Manish Kumar,General Director

of the Soltex Group Ltd.,Head of the Representative

office of FBA EAC in India, Sri Lanka,

Bangladesh, Malaysia

Aleksandr Kuschynski,Chairman

of the Association of Belarusian Banks

Georgy Kuchkov, General Director

of the Information and Publishing Center

«Eurasia»

Istvan Lengyel, Secretary General

of Banking Association for Central and Eastern

Europe

Amirsho Miraliev,Chairman of the Board

of the Association of Banks of Tajikistan

Valery Murin, Editor in Chief of the magazine «Eurasian

Financial and EconomicHerald»

Zakir Nuriyev,President of Azerbaijan

Banks Association

Bratislav Pejaković, Secretary General

of the Association of Montenegrin Banks

Krzysztof Рietraszkiewicz,Chairman of the Polish

Bank Association

Anatoly Tkachuk, Vice-President

of FBA EAC

Dumitru Ursu,Chairman

of the Moldovan Bankers’ League

Bakhtiyar Khamidov, General Director

of Uzbekistan banking association

EDITORIAL BOARD

Dear colleagues and friends!

«I’m engaged to India, I owe everything to her. I couldnot express my feeling for India more clearly than identifyit with the feeling for my wife. She worries me like no otherwoman in the world. Not because she is perfect. I dare saythat she has more flaws that I see. But here there is a senseof indissolubility». These words of Mahatma Gandhi, aswell as possible, illustrate the attitude of our today’s authorsto their country. The face of the cover is Chairman of theBoard of Directors of «State Bank of India», Rajnish Kumar,whose interview is the central material of the issue. The in-vestment opportunity of India is described by Presidentand Managing Director of Invest India, Deepak Bagla.

In this issue we continue to publish materials on the mostinteresting, debatable topics of the financial and banking in-dustry, the economy as a whole, fintech. The geography ofEurasia at that point is represented besides India by such coun-tries as Mongolia, Azerbaijan, Russia, Belarus, Kazakhstan,Hungary, Kyrgyzstan, France, Bulgaria, Montenegro, and Italy.

Interesting material, in my opinion, is presented in theheading «Practice», which deals with the current state of af-fairs in the system of international investment agreements —the basis for liberalization and the growth of the volume ofinternational capital flows. Currently there are more than3000 bilateral investment agreements containing variousdispute settlement mechanisms. The goal of the world com-munity, according to the author of the article, Lai Kamara,a well-known international arbitrator, is the conclusion ofa world investment agreement that could fulfill the role ofan international investment code and replace existing bilat-eral agreement.

In the heading «Expert opinion» our regular author Ist-van Lengyel, Secretary general of Banking Association forCentral and Eastern Europe, presents analytic material onthe transformation of the world banking system due to theinevitability and development of the fintech-revolution.

The latest trends and changes in the environment of fi-nancial technologies and regulation became the subject ofdiscussion at a round table, organized by the Association ofBelarusian Banks in connection with the release of Presiden-tial Decree No. 8 «On the development of the digital econo-my». According to the Chairman of the Association of Be-larusian Banks Alexandr Kuschynski, this document createsunprecedented conditions for the development of the IT in-dustry and gives serious competitive advantages to the coun-try in the creation of a digital economy of the XXI century.

Today a notable feature of globalization is the movementof labor resources. The number of migrants in the world in2017 was 258 million people, since the beginning of the cen-tury it increased by 49%. Russia is among the leaders in thenumber of both migrants who have been accepted and mi-grated from it. Andrey Bespalov, Chairman of the Coordi-

nation Council of theEurasian Center of Hu-man Resources, discuss-es that topic in his article«The window of eco-nomic opportunities».

In February of thisyear, within the frame-work of the RussianBusiness Week, a finan-cial forum was held,which is annually organ-ized by the RussianUnion of Industrialistsand Entrepreneurs.

The theme of the fo-rum was «Financial andbanking system of Russia: new challenges and risks». Distinc-tion of this forum from previous meetings of entrepreneurswith representatives of regulatory authorities was a joint ses-sion, which addressed the most important problems of thenational financial system. According to one of the represen-tatives of the banking community, the motto of the forumcould be the expression: «If everything is good, it means wedon’t have full information», which indicates the degree offrankness and severity of the discussion. It seemed to me im-portant to share with readers the impressions of what I heard.

The official rewarding ceremony of the annual interna-tional public award «Financial and Banking Elite of Eurasia»was held in November of the past year. In this issue we pres-ent the owner of «Gold bee» in the nomination «Develop-ment benchmark» — Optima Bank (Kyrgyzstan), and alsooffer to familiarize with the nominations 2018 to all thosewho would like to become the next winner of our Award.

FBA EAC, together with European financial and econom-ic associations, began preparations for The Fifth Moscow In-ternational Financial and Banking Forum: «European Unionand the EAEU: search for new formats of cooperation». Top-ics of the sectional sessions of the Forum are listed on theback cover of the magazine. More detailed information onparticipation in the Forum you can find on the website ofthe FBA EAC — www.fbacs.com.

A photo contest «The world through the eyes of a photo-grapher» continues. We are pleased with how actively non-professional photographers are taking part in it, what sin-cerity and love fill their work. We have a difficult choice.

Remember in Bulgakov's novel «The Heart of a Dog» Pro-fessor Preobrazhensky taught his colleague Dr. Bormentalnot to read Soviet newspapers at dinner because it worsensdigestion. I declare with all responsibility that our magazinehas a positive influence not only on the digestive system,but also on the immune system, vision and touch.

Read and write. We will be happy to your coauthorship.

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A word to the readers

A. Murychev,Chairman of the EditorialBoard of «Eurasian Financialand Economic Herald»

ЕВРАЗИЙСКИЙ ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ ВЕСТНИК | #2(4)-20184

Personality

RAJNISH KUMAR Chairman of the State Bank of India

Shri Rajnish Kumar has been with the State Bank of India for over three decades,having joined the Bank as a Probationary Officer in 1980. An M.Sc. in Physics, apartfrom CAIIB, Rajnish Kumar has held several key assignments across various busi-ness verticals, including two overseas assignments in Canada and U.K. He has vastexperience in handling large credit, project finance, foreign exchange and retailbanking. Rajnish Kumar has assumed the office as Chairman State Bank of India on 7th Oc-tober, 2017

«THE BEST IN OUR RELATIONS IS YET TO COME...»

RAJNISH KUMAR:

The possibility of financial union within EAEU enhances the positive outlook of the region.

“

rbi.org.in

INTERVIEW OF THE CHAIRMAN OF THE STATE BANK OF INDIA SHRI RAJNISH KUMAR

5

hri Kumar, how would youestimate the prospects ofcooperation between In-dia and Eurasian Econo-

mic Union?— We pay close attention to inte-

gration processes in the post-Sovietarea. The Eurasian Economic Union(Russia, Belarus, Armenia, Kaza-khstan and Kyrgyzstan) is a new-comer among regional integrationorganizations. It has been operatingas a Customs Union since 2011, andas an Economic Union since 2015. Es-tablishing the EAEU is no doubt alandmark achievement for its mem-bers after they had repeatedly en-dured two integrations «false starts»in the 1990s and 2000s.

EAEU is a common market of 182million people and has an aggregateGDP of approximately $2 trillion.EAEU accounts for 3% of the worldGDP. In addition to geopolitical objec-tives, it is based on a specific long-termeconomic agenda viz. free mobility ofgoods and services, labour and capital.

EAEU is a diverse market. TheUnion’s largest economies are thoseof Russia and Kazakhstan. The mak-ing of this union has created a largecommon market in pharmaceuti-cals, a common market in powerand a common market in oil and gas.Furthermore, EAEU member statesare beginning consultations on avery complex matter— creation ofan EAEU financial regulator by2022–2025, a supranational financial

institution that would be responsi-ble for enforcing common standardsin the Union’s financial markets andfor providing proper regulation andsupervision.

India has shared long historic tieswith Central Asian countries andRussia. A blueprint for India, CentralAsia cooperation was outlined in In-dia’s ‘Connect Central Asia Policy’ in2012. Connect Central Asia Policy isexpected to bring numerous bene-fits to both the sides. India is de-pendent on imports for its energy re-quirements. EAEU with its vast oiland gas resources can no doubtemerge as a major non-OPEC playerfrom which India can benefit.

At the same time, India is in a po-sition to offer good and affordablepharmaceutical drugs that can helpin poverty alleviation measures andalso is in a position to extend coop-eration by setting up civil hospitals /clinics in Central Asia. There are alsodiscussions within Connect CentralAsia on setting up a Central Asian e-network with its hub in India, to de-liver tele-education and tele-medi-cine connectivity, thereby linkingall the five Central Asian States. Thiswill enhance the quality of humancapital within the region.

It, therefore, comes as no surprisethat the Joint Feasibility Study Re-port of the Ministry of Commercehas concluded that the proposedFree Trade Agreement (FTA) is fea-sible and mutually beneficial. This

was based on the assessed potentialin bilateral trade in goods, trade inservices and investment. The studyhas further recommended that ade-quate focus may be given to the op-erationalization of the InternationalNorth-South Transport Corridor(INSTC) and Green Corridor be-tween India and the EAEU to takefull advantage of the FTA.

— Could you, please, give moredetails regarding financial aspectsof the Free Trade Agreement?

— The FTA specifically aims toincrease trade and commerce be-tween the member countries and In-dia. However, for trade relationshipto flourish, there is a need to estab-lish basic financial arrangement forfacilitating the flow of commerce. Ason January 2018, there are only twomajor Indian banks in the region viz.Commercial Indo Bank LLC,Moscow (60% owned by State Bankof India) and JSC Tengri Bank, Kaza-khstan (49% owned by Punjab Na-tional Bank). Except for RussianBanks, there is no major CentralAsian bank in India.

Thus, as we move closer to theFTA, the bilateral financial relation-ship is in its infancy. Given the com-plementarities between the two re-gions, India-EAEU member statesmay soon have examined possibilityof cooperation in the financial sectorthrough banking presence in boththe regions. At the same time, it may

S

become imperative to open offices ofgeneral insurance companies in theregion to develop risk mitigationproduct for furthering trade and in-vestment in the region.

— And what could you tell usabout the work of the State Bankof India?

— State Bank of India (SBI) is oneof the oldest financial institutions ofIndia with a sterling legacy of over200 years, SBI is now serving morethan 420 million customers acrossthe globe.

The origins of SBI date back to1806, when the Bank of Calcuttawas established. In 1921, the Bank ofBengal and two other Presidencybanks (Bank of Madras and Bank ofBombay) were amalgamated toform the Imperial Bank of India.

In 1955, the Reserve Bank of Indiaacquired controlling interests of theImperial Bank of India and SBI wascreated by an Act of Parliament totake over the functions of the Impe-rial Bank of India.

SBI is the largest commercialbank in India in terms of assets, de-posits, profits, branches and employ-ee strength. As on April 1, 2017 andafter the merger of five AssociateBanks & Bharatiya Mahila Bank, thebank commanded a market share ofaround 23% in the banking industryof India. According to The Bankermagazine, as on 31st March 2017, theBank ranks 54th among globalBanks in terms of assets. With 22,000plus branches, it has the largestbranch network in country cateringto providing a wide gamut of finan-cial services to its more than 420million customers through its staffnumbering 263,538.

SBI has been at the forefront of Fi-nancial Inclusion initiatives in India.The Bank is the pioneer in the Busi-ness Correspondent (BC) model, analternative mode for providingbanking services to cater to both ur-

ban and rural customers, a segmentwhich is still characterized by smallvalue transactions. The policy of thebank on Financial Inclusion isgeared towards promoting financialeducation and making credit avail-able to productive sectors of theeconomy, including the rural andMSME sectors. This is being done atthe most affordable rates and it is en-sured that the benefits of all Govern-ment-run schemes reach the targetpopulation in full, without any leak-ages. The Bank has successfullyleveraged technology for propagat-ing Financial Inclusion by introduc-ing internet based Kiosk Banking,Card based and Cell phone messag-ing channels. As a result, SBI ac-counted for the largest share of ac-counts with around 35 percent un-der the Pradhan Mantri Jan DhanYojana which led to universal bankcoverage in India in 2014.

Shedding the normal stereotypes,SBI today is recognized as techno-logically advanced bank in thecountry. With the launch of sbiIN-TOUCH in 2014, State Bank of Indiawas the first Bank in India to intro-duce the concept of «Digital Bank-ing». State of the art technology likeDebit Card Printing Kiosks, Interac-tive Smart Tables, Interactive DigitalScreens, Remote Experts throughvideo call etc. were introduced toproviding a completely different ex-perience through online self-servicemode. The key feature of thesebranches is that you can open yoursavings bank account on AccountOpening Kiosk (AOK) within 15minutes.

— And what does the interna-tional activity of SBI involve?

— SBI being a Governmentowned bank has closely aligned itsbusiness with stated developmentgoals of the Government of India. Atthe same time, it has not compro-mised on commercial principles


In the coming years, the bankwill look at various regions of the globe including EAEU as a potential opportunity

«

which have made it one of the mostprofitable public enterprise in India.Although the major share of its rev-enues comes for its domestic opera-tions, with the progressive liberaliza-tion of India economy since 1992,the Bank has developed a sizableforeign presence. Today, SBI has 207offices in 35 countries.

The International Operations ofthe Bank are generally guided bythe overarching principle of sup-porting global Indian corporate, In-dian Diaspora and bilateral tradespread across geographies. The Bankis also focusing on local populace totap local business in some countriessuch as in Nepal. In tandem with thedomestic operations of the Bank, theInternational Banking Group (IBG)of SBI functions with considerableautonomy and has dedicated verti-cals in Credit & NPA management,Compliance, Treasury Management,Human Resources, Operations andGeneral Banking issues.

The international operations ofSBI have always followed a smoothcourse owing to its policy of zero-tol-erance to non-compliance of regula-tory prescriptions. Due to the globaleconomic crisis, regulations in mostcountries, especially for ForeignBanks, have become very stringentleading to high compliance cost. TheBank has successfully announcedthe launch of its UK subsidiary, SBI(UK) Ltd in April 2018. Subsidiarisa-

tion of the retail franchise SBI UK fol-lows after Bank had opened its doorsto UK residents in 1921.

In the coming years, the bank willlook at various regions of the globeincluding EAEU as a potential op-portunity. The possibility of finan-

cial union within EAEU enhancesthe positive outlook of the regionbecause of its low dependence onforeign credits accompanied by con-siderable structural similarities with-in the economies. So the best in ourrelations is yet to come.


Founder’s page.

FBA EAC

GENERAL MEETING OF FBA EACMEMBERS

ASSESSMENT CENTER

SIGNED

On February 16 there was a meeting of the Council forProfessional Qualifications Development where it wasannounced about registration of the FBA EAC Quali-fication Assessment Center (QAC). A. Bespalov, Chair-man of the Coordination Council of the Eurasian Cen-ter of Human Resources received the Registration Cer-tificate.

On April 5, 2018 a Memorandum of cooperation wassigned with the Eurasian business union. The signeesof the Memorandum were the General Director ofFBA EAC O. Berezovoy and the Chairman of theBoard of the Eurasian business union V. Kambolov.

On March 8, 2018 a Memorandum of cooperation wassigned with the Association of trade entrepreneurs ofKazakhstan. The signees of the Memorandum werethe Vice-President of the Association of trade entre-preneurs of Kazakhstan Zh. Azhibaeva and the Gen-eral Director of FBA EAC O. Berezovoy.

On March 2, 2018 the Financial and Banking Association of Euro-Asian Coop-eration held the General Meeting of its members.

The main topic of the discussion was Association’s activity in 2017, goals for2018, rotation of the members of the Supervisory Board and CoordinatingCouncil, approval of amendments to the Charter of FBA EAC and approval ofthe new version of the Provisions of membership in FBA EAC.

FBA EAC President B.Bayseitov headed the Meeting. In his speech he under-lined the importance, awareness and credibility of Association. He stated asthe main task of Association the development of effective financial instrumentsfor business demands of the members and partners of Association.

«FBA EAC has shifted from the traditional concept of a banking association asa structure for protecting the professional interests of a certain pool of partici-pants, to the build-up of a multilevel client-focused system of relations betweenbusinesses and banking society», — said FBA EAC General Director Oleg Bere-zovoy.

The Chairman of Coordinating Council A.Murychev touched upon the jointmeetings of Supervisory Board and Coordinating Council in 2017. They cov-ered such issues as integration of SME into the common exchange system inthe EAEU area; installation and development of multicurrency clearing system;launch of the international net of HR service and qualification assessment cen-ters to serve labor migration, etc. And decisions taken at those meetings, be-came the basis for the report of Department of economic and financial policyof EEC, which certainly highlights the importance of the projects, carried outby FBA EAC under the auspices of EEC.

For the future the Meeting approved the following focus areas for the Associ-ation: the ongoing project of common exchange area on the territory of Eurasia,development of multicurrency clearing and transferring it to blockchain tech-nology platform, creation of the centers for personnel training and customs au-dit in EAEU, development of the «bank of projects» with innovative financialinstruments, launch of financial and investment funds.

The agenda also included program projects of FBA EAC. In 2017 FBA EAC Qual-ification Assessment Center was registered and the first Assessment Center inArmenia (Erevan) was launched at the premises of Russian-Armenian Univer-sity.

Resulting from the reports of the management and the Audit Commission ofAssociation the Meeting recognized the work of Association acceptable, point-ed out its progress and approved the focus areas for 2018.

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BUSINESS TRIP TO FRANCE

DEVELOPING BRANCHNETWORK

COURSE ON CÔTE D'IVOIRE

On March 8–10, 2018 the Association management visited Pariswith a business trip. At the meeting the Association was repre-sented by the Chairman of Coordinating Council A. Murychevand General Director Oleg Berezovoy. The French party was rep-resented by Ive Pozzo di Borgo and the member of the Manag-ing Board of Claresco Finance Lai Kamara, a well-known Frenchlawyer and international mediator.

The parties discussed ways to attract to FBA EAC platform therepresentatives of business society from Europe, Africa and theMiddle East, the opportunities of interaction with the French-Russian Chamber of commerce and the perspectives of invest-ment fund. The Association also offered some other projects tobe fulfilled in France.

The parties agreed that the work of French business on FBA EACplatform will provide for new prospects and allow to use thewhole range of financial and trade instruments, available in theAssociation and implement them on the territory of Eurasia.

New FBA EAC Representative offices were opened at the begin-ning of the year.

FBA EAC DEVELOPS TIESWITH ITALIAN BUSINESS On March 22, 2018 the Chairman of Coordinating Council ofFBA EAC A. Murychev and the General Director of FBA EACO.Berezovoy had a business meeting with the President ofAREZZO FIERE E CONGRESSI Srl (Italy) Andrea Boldi.

The parties decided to develop cooperation and to organize aspecial session for jewelers, within the framework of the FifthMoscow international financial and economic forum «EurasianUnion and the EU: search for new formats of cooperation». TheForum will be held on November 30, 2018 in Moscow.

In April, 2018 Deputy General Director of FBA EAC EgorIvankov visited Cote d’Ivoire. On April 11, 2018, together withMarc-Olivier Tetchi, FBA EAC Head of Representative office inCote d’Ivoire, he held a press-conference where he spoke aboutfuture business projects of FBA EAC on the territory of Coted’Ivoire. These projects will be implemented with the help of thecompany SALUS, which has recently entered African marketand is rapidly developing there now.

Projects cover a wide range of areas such as education, scientificresearch and agriculture.

Marc-Olivier Tetchi,Head of Representativeoffice in Cote d’Ivoire

Yaghoup Jamali, Head of Representativeoffice in the Islamic Republic of Iran

Jerome Clausen, Head of Representativeoffice in France


RSPP news

www.рспп.рф

FINANCIAL FORUM-2018

FINANCIAL AND BANKINGSYSTEM OF RUSSIA: NEW CHALLENGES AND TRENDSIN EARLY FEBRUARY WITHIN THE RUSSIAN BUSINESS WEEK THE ANNUAL FINANCIAL FORUMWAS HELD BY THE RUSSIAN UNION OF INDUSTRIALISTS AND ENTREPRENEURS (RSPP). UNLIKE THE PREVIOUS MEETINGS BETWEEN ENTREPRENEURS AND REGULATORS, THE HALL-MARK OF THIS FORUM WAS A UNITED SESSION WHICH COVERED THE MOST CRUCIAL CHAL-LENGES OF THE NATIONAL FINANCIAL SYSTEM. AS ONE BUSINESSMAN MENTIONED THE FORUM COULD HAVE THE SLOGAN: «IF EVERYTHINGIS GOOD, IT MEANS WE DON’T HAVE FULL INFORMATION».

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his welcomingspeech the pre-sident of RSPPAlexander Sho-

khin pointed out that in this coun-try there are general macroeconom-ic conditions for economic growthdue to the Bank of Russia and its ef-forts. «At the same time the demandfrom business is still unsatisfied withregard to long-term financing andfunding of investment projects, anumber of business areas face thelack of working capital financing.And a logical question emerges: howto balance the interests of govern-ment, corporates and commercialbanks», — said Shokhin.

The forum moderators A. Mury-chev, the vice-president of RSPP, theChairman of the CoordinatingCouncil of FBA EAC defined severalhot topics for discussion:

— positives of 2017;

— challenges of 2018;— governmental plans for regula-

tion update; — future of digitalization in fi-

nancial intermediation and bankingsector in particular.

First of all the forum participants un-derlined that the Central Bank ofRussia had managed to stabilize in-flation growth, to achieve and evenexceed the announced target of in-flation for 2017. The regulator wasplanning to decelerate nominal in-flation down to 4 percent. But ac-cording to Rosstat, customer infla-tion was at the level of 2.5 percent bythe end of the year. And it is thelowest level since 1992. For the cur-rent year the Bank of Russia expectsthe inflation of consumer pricesagain at the level of 4 percent. Thisstabilization created conditions for

planning and financing of businessprocesses.

Representatives of the Russianbusiness pointed out that they sup-port the CBR’s efforts of the recoveryin banking system and financial mar-ket in general and they understandthat in 2018 the trend will remain. Itwas mentioned that in 2015 licenseswere revoked from 93 commercialbanks, in 2016 there were 97 suchbanks, in 2017 — 47. Last year licens-es were revoked from 30 insurancecompanies, while in 2015–2016 150insurance companies left the mar-ket. Other segments of the Russianfinancial market find themselves ina similar situation.

The regulator’s efforts to improvediscipline and responsibility of com-mercial banks for adherence to pru-dential requirements have led to amore open financial intermediation.In future it is supposed to raise trust

Positives of 2017

A. Shohin, President of the RSPP A. Murychev, Executive Vice-President ofRSPP, Chairman of Coordinating Councilof FBA EAC

In

in credit organizations from thepart of business and individuals, tocalm situation in the interbank mar-ket, reduce credit and operationalrisks.

In spite of the drastic cut in thenumber of commercial banks thepopulation and companies still trustthe national banking sector. It is reflected in the rise of deposits by 7 percent from individuals and by 9 percent from legal entities.

During 2017 the Bank of Russiareduced the key rate 6 times from 10 to 7.75 percent. In early 2018 theregulator keeps to this policy (onFebruary 9 the Supervisory Board ofthe Bank of Russia reduced the keyrate by 25 b.p. to 7.50 percent).

Basically it resulted in lowerrates both for corporates and indi-viduals. And the CBR statistics con-

firm this. The interest-rate policy ofthe banking sector followed the in-terest-rate policy of the regulator(see chart). Moreover for somecredit products the interest rate wasdecreasing faster than the CBR keyrate.

The biggest reduction of interestrates on loans is for the productssupported by the state programs, inparticular mortgage loans.

Among positives of 2017 the par-ticipants stressed good profits of thesector: in spite of a drop of 15 per-cent in comparison to 2016, it stillamounted to RUB 790 bn. Accord-ing to regulator among 515 commer-cial banks 420 reported about prof-itability. It is worth mentioning thatRUB 647 bn. (81.9%) from RUB 790bn. of profits was earned by Sber-bank of Russia.

Another positive moment of theyear 2017 was a slight drop in theshare of non-performing loans in thebanks’ loan portfolios which alsomeans a certain stability. Accordingto the Bank of Russia in 2017 theshare of non-performing loans re-duced from 6.72 percent in the be-ginning of the year (after the peak of7.39% in March) to 6.68 percent. A little bit more considerable reduc-tion of NPL share was in the retailloans — from 8.1 to 7.3 percent.

Total assets of the banking sectorin 2017 showed growth of 4.9 per-cent or RUB 3.9 tn. after their dropin 2016. The fastest growth was in re-tail lending: the retail loan portfoliogrew during the year almost by RUB1.5 tn. or by 14 percent. And the re-tail lending contributed 38.4 per-cent into the growth of total assets.The main part of lending was mort-gage loans.

Share growth of public sector banks

Approving the support for the Cen-tral Bank’s recovery policy, the par-ticipants expresses concerns aboutthe policy of nationalization of fi-nancial intermediation and narrow-ing of space for private business. Thefact that unbalances market compe-tition seems to be the concentrationof ¾ of total assets in the banks witha large share of public sector.

In late 2017 only two private com-mercial banks were in the top 10,and five in the top 20. However ex-perts estimate that there are onlythree banks, totally independentfrom the state, and in 2016 therewere eight. The share of public cred-it organizations grows, while thespace for private banking businessnarrows.

State banks already dominate inthe markets of the most attractivebanking products. Their expansion


Consumer loans, incl. up to 1 year

Consumer loans, over 1 year

SME loans, incl. up to 1 year

SME loans, over 1 year

Non-financial entities loans, incl. up to 1 year

Non-financial entities loans, over 1 year

22,88

16,85

14,77

12,78

11,61

12,46

19,66

14,09

12,79

9,94

9,67

9,74

3,22

2,76

1,98

2,84

1,94

2,72

Dynamics of average market interest rates on loans in 2017, %

Average decrease,

p. p.

Resource: www.cbr.ru/statistics/?PrtID=int_rat

Loans January 2017

November2017

Challenges of 2017

is also backed by the direct legisla-tive acts determining the lists ofbanks with which the most effi-cient Russian companies should be.As well as the lists of credit organi-zations allowed to provide certainservices (for example guaranteesfor budgetary contracts); take de-posits of temporally available statefunds; maintain accounts of thefunds for overhaul of apartmentblocks etc. Such approach of legis-lators on the one hand aims at thesafety of budgetary funds and onthe other hand gives privileges topublic banks and unbalances mar-ket competition.

Another challenge is that the pos-sibility of certain services dependson the capital amount of a credit or-ganization, and it also gives betteropportunities to public sector banks.Thus the Directive of the Govern-ment of Russia #986 dd. 19.08.2017determines the placement order ofbudgetary funds in the accounts ofcommercial banks with the follow-ing requirements: general license,equity capital not less than RUB 250bn., ACRA credit rating not lowerthan A+(RU), ExpertRA rating notlower than ruA+, participation inthe deposit insurance system, debtclearance.

The CBR’s policy of discipline im-provement in the banking sector isfollowed by license revocation —starting from the beginning of 2018the regulator revoked licenses from6 commercial banks. According toRIA Rating in the mid-run at least 4commercial banks from top-50might be recognized insolvent, bedeprived of license and be exposedto financial rehabilitation. As a resultthere still remains high volatility oninterbank markets and mutual mis-trust of players. In particular it is inevidence with regard to the growthof funds which are mostly kept inthe Bank of Russia and not put forthto interbank markets.

The demand — supply mismatch in loans

In spite of the fact that last year thebanks managed to increase their loanportfolios, their structure has nega-tively changed. Thus during the yearthere was a cut in the share of loansto non-financial organizations. Themost considerable cut was seen inthe share of loans longer than 3years — from 15.88 to 9.54 percent.Corporates had sustainable demandfor development loans, but not al-ways did they have possibilities tosatisfy it due to numerous problems:

— non-financial organizations arenot happy with high interest rateson over one year loans, while bankscan’t decrease them because of ex-pensive funding;

— required additional reserves ofcredit organizations. Although offi-cially the NPL level decreased in2017, according to ACRA ratingagency its actual level is much high-er — 12–15 percent. According to da-ta last year the number of bankruptlegal entities grew and in the secondpart of the year the growth speededup by 12.4 percent over the same pe-riod in 2016. All together 13 557companies were adjudged bankruptduring the year — same level as in2009, the crisis year;

— strict requirements to solvencyof potential borrowers and the quali-

ty of their collateral. Banks must stickto rules, but companies can’t ensure it.

Moreover according to G.Tosun-yan, the President of the Associationof Russian Banks, credit organiza-tions are more and more cooperat-ing between each other rather thanfinancing the real sector of economy.During the year total liquidity of thebanking sector increased by 26 per-cent, banks’ funds on accounts — by57 percent, corporate loans portfo-lio — only by 0.2 percent, consumerloans — by 7 percent.

Better regulation environment

In his speech A. Aksakov the Presi-dent of the Association «Russia»,Chairman of the State Duma Com-mittee on financial market toldabout the plans of deputy corps re-garding the improvement of regula-tion in financial intermediation. Hepointed out the following steps:

— amendments to the currentlegislation with a stress on the use ofindependent rating agencies, not onthe capital amount of financial inter-mediaries when determining theiraccess to budgetary services (thereis positive experience in housing;currently the State Duma discussesdifferent offers including the onesfrom the banking society);

13

G.Tosunyan, President of the Associationof Russian Banks

A. Aksakov, Chairman of the Council ofthe Association banks of Russia, Chairmanof the State Duma Committee on financialmarket

Governmental measures

a draft law regarding transactionswith derivatives, but a number of is-sues weren’t approved (includingthe obligatory margining of deals);

— the regulation of informationeconomy is also being actively dis-cussed, as well as two draft lawsfrom the Ministry of Finance of Rus-sia and the Bank of Russia (a com-promise not found yet).

Available development funding

According to S. Shetsov, the FirstDeputy Governor of the Bank ofRussia, this year the regulator will

— amendments to the legal actsaimed at deoffshorization of theRussian economy, revision of the listof financial centers which prohibittransactions for Russian residents(besides it will demand changes intothe legal regulation of the idea of«foreign investor»);

— preparation in the State Dumaof legislation for the new taxamnesty;

— the functions and responsibili-ties of the financial ombudsman forinsurance sector have been coordi-nated in the committees; federal lawis pending;

— the State Duma has approvedthe spread of deposit insurance re-quirements to SME funds in theamount of RUB 1.4 m. (the relevantdraft law is expected during thespring session);

— there is also a draft law (passedthe second reading) to increase theattractiveness of exchange marketfor private retail investors — it im-plies insurance of funds on individ-ual investments accounts;

— another draft law has passedthe first reading in the State Duma —

offer a long-term governmental pro-gram of development of the nationalfinancial market up to 2020. TheBank of Russia believes that themedium and long-term financingdemand will be satisfied due to anumber of measures:

1. In 2017 the Federal Law #486dd. 31.12.2017 «On syndicated cred-it (loan)» entered into force. It de-termines this product and allows tocombine funds of credit organiza-tions and non-banking companiesfor long-term development lend-ing.

2. The regulator takes efforts toencourage companies to raise fundsin the exchange market, and theseefforts turned out to be successful.For example corporate bonds grewby almost 20 percent in a year. Thetrend is confirmed by A. Afanasyev,Chairman of the Board of PAO«Moscow Exchange». He under-lined that last year Russian compa-nies IPO peak was exceeded. He alsolisted some hallmarks of the process:

— medium size companies havestarted IPOs;

— there are more «double issues»(16) when issuers place securities simultaneously at the Moscow Exchange and at other foreign ex-changes;

— large Russian issuers leave for-eign markets, list at the Moscow Ex-change and shift their trades to thenational trading platform.


S. Shetsov, the First Deputy Governor ofthe Bank of Russia

A. Afanasyev, Chairman of the Board ofPAO «Moscow Exchange»

3. Banking sector recovery in thelast few year lead to decrease in thenumber of investment banks, and asa result there is a deficit in nationalunderwriters. The Bank of Russia isnow working on the solution to theproblem.

At the same time, according toS.Shevtsov, the activity of issuers isrestricted by the unwillingness ofmany Russian companies to becomepublic and disclose informationabout their activities.

4. The Central Bank’s manage-ment thinks that the developmentof digital technologies will stipulateRussian companies to opennesswhich will diversify funding re-sources.

5. In future the regulator is goingto lay stress more on independentrating agencies and audit with re-gard to prudential requirements.But it will become fully possible on-ly after the reform of audit.

According to M.Rastrigin, FirstDeputy Minister, investment fund-ing will become more available in2018 due to a new mechanism,worked out by the Ministry of Eco-nomic Development of the RussianFederation. The mechanism is calleda «factory of project finance» creat-ed at the premises of VEB. MED as-sumes that the «factory» will soon belaunched, and later the largest Russ-ian banks can join it, such as Sber-bank, VTB and Gazprombank.

MED is responsible for budgetarytransfers, while the control bodiesare entrusted with a duty to controlconditions, goals and the order ofthese transfers. VEB is «appointed» a «factory» manager, responsible forselection of investment projects, andan organizer of syndicated loans.

There are several sources of fund-ing the «factory»: asset contributionand federal budget subsidies, long-term public bond offering via specialassociation of project finance (SAPF),syndicated loans with participationof private investors. M. Rastriginsays the bond financing is expectedto cover 40 percent of the «factory’s»funding demand. MED assumes itwill develop the Russian bond mar-ket, and the players will get a reli-able debt instrument.

Besides long-term financing givesthe project another advantage —low fixed interest rates for the wholeperiod of investment projects.

The role of public sector banks

D. Tulin, First Deputy Governor ofthe Bank of Russia underlined thatthe regulator has no certain plan re-garding the number of banks in thecountry, and CBR doesn’t aim to na-tionalize the banking sector. It hasthe only task — higher quality of thebanking business.

According to D.Tulin the form ofproperty doesn’t really matter if the

bank’s model is based on marketprinciples, and the corporate man-agement is based on an effectivemodel. With these requirementsmet the work of a state bank doesn’treally differ from the privet ones,and they shouldn’t be opposed.

Nationalization of the bankingsector is the result of its recovery.The Central Bank doesn’t strive tobecome the owner of the rescuedbanks. At the same time the statecan’t refinance insolvent commercialbanks with budgetary money: ifbudgetary money is contributed tocapital of a rescued bank, the statemust become its owner.

Today public sector banks start tocompete with each other, and thetrend is likely to develop. In the endit will improve banking market com-petitiveness. New market players(rescued credit organizations), wellcapitalized and excess liquidity willalso drive the competition.

Another line of regulator’s effortsfor the development of fair compet-itiveness on the banking market isthe support for small and mediumcredit organizations. The entry intoeffect of the Federal Law # 92-FZ onproportional banking regulationwill allow small and medium creditorganizations to get license and con-tinue their activity and support oflocal economies.

However G. Tosunyan says thatthe long list regulatory measuresdoesn’t include two important offersof the Association of Russian Banks:

— to create a «bad debts bank»which would imply a preventionmechanism of bankruptcy or banksrehabilitation. Such bank could ac-cumulate bad debts on a preventivebase (in proportion to bank’s capi-tal). Rehabilitation is certainly betterthan bankruptcy, but the best is notto allow either of them;

— to decrease regulatory burdenon banks. One should realize thatthe uprise of crypto currencies is the

15

M. Rastrigin, First Deputy Minister D. Tulin, First Deputy Governor of theBank of Russia

result of excess banking regulationwhich forces financial intermedia-tion to less regulated segments.

All representatives of banking soci-ety pointed out that it’s hard toplan business without certain regu-lation of innovative financial tech-nologies. The CBR’s position wascleared out by O. Skorobogatova,First Deputy Governor of the Bankof Russia, member of the Superviso-ry Board of CBR. She stressed thatthe use of digital technologies posi-tively influence the economicgrowth. But to take the full advan-tage from them the Central Banks

should tackle the following five is-sues:

1) normative regulation of digitaleconomy;

2) establishment of relevant in-frastructure;

3) cyber security; 4) staff training; 5) development of professional

competence in digital economy andresearch.

Today the chaotic developmentof the retail digital market is a realchallenge for regulatory authorities.Discussions of laws showed that au-thorities agree on basic notions, butdon’t have a consent on the possibil-ity to exchange crypto currenciesfor fiat currency. The Bank of Russiaconsiders crypto currencies as highrisk for average consumers.

At the same time innovative finan-cial technologies have huge potential.So the regulator must find a compro-mise between the development ofnew technologies and protection ofcustomers’ interests. A draft law is ex-pected by the end of the first quarterof 2018 in the State Duma regardingdigital deals and assets.

The Bank of Russia is working ona number of research projects:

— remote identification plat-form — in force from 01.06.2018 at

the premises of Ministry of Telecomand Mass Communications of theRussian Federation. The regulatorestimates that it will improve com-petitiveness because the clients willbe able to quire terms from severalbanks and chose the most favorableones. Here the main challenge is per-sonal data security without banksparticipations;

— instant payments system. Inthe coming year cards are expectedto remain as a means of remote ac-cess to a bank account, while newtypes of payments will develop. Theinstant payment system is expectedin 2019;

— a wide application of innova-tive financial technologies whichwill require profound tests and riskassessment. With this aim the Bankof Russia has initiated the so called«regulatory sandboxes».

As for the digital platforms ofcredit organizations, the Bank ofRussia believes that its productwon’t push out other incentivesfrom the market.

The speech of O. Skorobogatovawas added by her colleague S. Shev-tsov who said that the risks of digi-talization in financial intermedia-tion are stipulated by a human fac-tor. The Federal Law on businessreputation of financial market play-ers means that all of them should beresponsible for the financial riskstaken. Now the Central Bank isworking out amendments and an-nexes to the Code on corporate gov-ernance to raise the responsibility ofbanks’ owners for the reliable finan-cial figures, business decisions andnegligence. Yet another task is to bal-ance the rights of Board members totake business decisions and their re-sponsibility for the results of thesedecisions.

RSPP Commission on Banks and Banking


O. Skorobogatova, First Deputy Governorof the Bank of Russia, member of the Supervisory Board of CBR

Future digitalization ofbanking sector

award winner

FROM TRADITIONALBANKING TO THE DIGITALIZATION OF FINANCIAL SERVICES

THE BANKING SECTOR PLAYS AN IMPORTANTROLE IN THE SUCCESSFUL DEVELOPMENT OF THE COUNTRY'S ECONOMY. HOW ONE OF THE SYSTEMICALLY IMPORTANT BANKS OF KYRGYZSTAN — «OPTIMA BANK» —OPENS UP NEW DIGITAL OPPORTUNITIES FOR FINANCE, SUPPORTING TRADITIONAL BANKING PRODUCTS, BEIBUT KAPYSHEV,CHAIRMAN OF THE BOARD OF «OPTIMABANK» OJSC SAYS.

www.optimabank.kg


hat a positiondoes «Optima

Bank» hold onthe market now?

What is its role inthe development of the bankingsector and the economy of Kyr-gyzstan?

— Today, the situation of «Opti-ma Bank» in the domestic bankingsystem is truly unique. «OptimaBank» is a stable financial institution,a bank with a good balance sheetstructure, a diversified loan and de-posit portfolio, and a balanced geo-graphical coverage throughout Kyr-gyzstan.

By the end of 2017, the marketshare of «Optima Bank» was 24%,the loan portfolio — 15%, the clientdeposit base — 16% according to netprofit; these figures undoubtedlybring us to the leading position inthe banking sector. The bank is oneof the largest taxpayers in Kyrgyzs-tan. The amount of taxes paid to thebudget for 2017 is KGS 333.5 mln, for2016 — KGS 361.4 mln.

About 1,000 employees in morethan 52 offices across Kyrgyzstanserve more than 186,000 customers.

— Who are the key customersof the bank?

— Customers are our main asset.Among them — accomplished busi-nessmen who started their entrepre-neurial path at the dawn of inde-

pendent Kyrgyzstan’s formation aquarter of a century ago, and thereare young students who only recent-ly used our banking services to payfor online learning or buy a new-fashioned gadget on the Internet.This is really a large scale of the ac-tivities of our bank, which allow usto offer the full range of bankingservices, serve the broadest cus-tomer audience, successfully imple-ment innovations and move theeconomy of Kyrgyzstan forward.

Since «Optima Bank» is universal,we serve a very wide range of con-sumers.

Among the bank’s customers arethe largest companies, both regionaland global. The structure includes aseparate unit that works with largecorporate customers. A special officehas been opened in the capital towork on short-, medium- and long-term loans, structured trade andproject financing for corporate cus-tomers, for example, pre-export fi-nancing of commodities transac-tions, operations with financing ofimport liquid goods transactions,and imports of equipment for localproducers, warehouse operationsand financing of local sales.

The VIP-service center of «Opti-ma Bank» provides Private Bankingservices. Financial services for afflu-ent customers are allocated in a sep-arate line of business, since workingwith the HNW segment (from Eng-

lish high-net-worth-segment of pri-vate individuals with maximum in-comes) provides for a number offeatures and an individual servicesystem and a range of banking prod-ucts.

We also give full attention to thework with small and medium-sizedbusinesses. In terms of lending, «Op-tima Bank» and the EBRD almostevery year sign loan agreements,which are used to finance small andmedium-sized businesses.

Taking into account the develop-ment of Internet trading, «OptimaBank» is actively working in thefield of Internet acquiring, whichenables Kyrgyz trade and service en-terprises to accept payment cards ofinternational payment systems VisaInternational, Union Pay Interna-tional and Elkart national paymentsystem for the payment of goodsand services through POS-terminals.

The bank’s focus on building a dig-ital society and transferring businessto a new digital age is one of the maindirections now. Therefore, we are ac-tively developing non-cash pay-ments, regularly conduct marketingcampaigns aimed at motivating thepopulation to switch to online pay-ments gradually. Internet bankingOPTIMA24 is just one of the maintools for digitalizing financial retailservices for the Kyrgyz citizens.

We are striving for digitalizationto make the business more flexible,

W

19

adapted to the realities of the mod-ern day, competitive in the emerg-ing «digital world», bringing cus-tomers an excellent result and a sta-ble profit to shareholders.

— What makes the work of«Optima Bank» so successful? Themain factors?

— The basis of bank positioningis laid down in the slogan: «Conve-nience. Technologies. Reliability»

For more than 25 years of activeand stable work, the Bank has confi-dently become one of the leaders ofthe banking system of the countryand has acquired a reputation of themost dynamically developing bank,a reliable partner that respects theinterests of its customers and share-holders. The Bank was recognized asa leader in the nominations «BankNo.1 in Kyrgyzstan», Domestic Re-tail Bank of the Year according tothe financial edition of the «AsianBanking and Finance» and Kyrgyzs-tan Domestic Technology & Opera-tions Bank of the Year (award givento the financial institutions distin-

guished by using advanced tech-nologies in conducting bankingtransactions) 7 times in a row. «Opti-ma Bank» has been annually award-ed a diploma «The Best Bank of Kyr-gyzstan» for the 1st place in a ratingof banks of the Kyrgyz Republic ac-cording to the results of the financ-ing activity conducted by the infor-mation resource Tazabek (AKIpress)for 8 years in a row from 2010 to2017.

In 2017, «Optima Bank» becamethe award holder of the internation-al prize «Financial and Banking Eliteof Eurasia» established by the Finan-cial and Banking Association of Eu-ro-Asian Cooperation (FBA EAS),having won the «Standard of Relia-bility and Development» nomina-tion.

Three pillars, which the success-ful activity of «Optima Bank» isbased on, is high professionalism ofthe work collective, competentmanagement, customer-oriented ap-proach, raised to the highest degree,modern technologies of businessmanagement and quality control.

— In what direction does thebank plan to develop in the fu-ture? What are the plans?

— We are facing new challenges,and «Optima Bank» looks at the fu-ture with optimism. It is planned tosignificantly expand the network ofATMs and payment terminals, intro-duce many interesting bankingproducts that will make our cus-tomers’ lives more comfortable, in-cluding the implementation of high-tech projects in the field of paymenttechnologies and Internet payments.

«Optima Bank» is always up tospeed on the situation, we under-stand where, how and why the mar-ket is moving, we stay one step aheadof it, and we forecast trends in themodern world where everythingchanges with the speed of Internetsignal transmission. This particularmodel allows us to carry out asmooth transition from traditionalbanking to fintech-innovations. Inaddition, we carefully lead the wayour customers, offering them the bestservice, up-to-date banking products,and a high degree of reliability.

June 1–2, 2018 Bishkek — Issyk-Kul, Kyrgyz Republic

Forum topic:

Banking technologies, services and paymentsGreen economy and sustainable financing

Information Security

Bishkek International Finance Forum is an annual major business event, which is an optimal platform for exchang-ing opinions, discussing the latest trends in the financial sector, offering ready-made solutions, announcing already begun projects, finding partners in the Kyrgyz Republic and other countries.

WWW.UB.KG

Rustam Sarybaev: [email protected] +996 312901058+108


www.ayuholding.kg

The largest company in Kyrgyzstan operates as a multifunctional holding company, which through itssubsidiaries provides services in the sphere of law, finance, industry production, agricultural production,

building construction, economics, sales and marketing

5000 workplaces

more than 30 dynamicallydeveloping companies

distribution of food and beveragesthroughout Kyrgyzstan

12 partner countries

export of products to a number of countries

reliable and stable partner

fair and open competition

new technologies in productionand progressive methods of wor

close-knit team of professionals


BANK. BANK. BANK

DEMCHIGJAV MOLOMJAMTSSenior Advisor to the Board of the International Investment Bank. Doctor of Economic Sciences, Honored Economist of Mongolia

Date and place of birth: September 17, 1951, Zavkhan Aimag, Mongolia. In 1975 he graduated from the Irkutsk Institute of National Economy with aspecialization in «Finance and credit». From 1975 to 1982 he held a positionof economist and then became the senior economist and a Head of theForeign Exchange Policy Department in the Ministry of Finance of Mongolia.From 1982 to 1984 — Head of the Budgetary Policy Department of the Min-istry of Finance of Mongolia. From 1984 to 1990 — Minister of Finance ofMongolia. From 1990 to 1992 — Minister and Head of the Government Officeof Mongolia. From 1992 to 1996 he worked as Governor of the Central Bankof Mongolia (Mongolbank). From 1996 to 2016 he was a Member of the Board,Deputy Chairman of the Board at the International Bank for Economic Co-operation.

INTERNATIONAL INVESTMENT BANK GOES TO A NEW

STAGE OF ITS DEVELOPMENT

The results of the Bank's activities in2013–2017 consolidate its new qualityas a modern multilateral institution ofdevelopment, demonstrate the successof the comprehensive reform

“

www.iib.int

fter the collapse ofthe world socialist

system a new his-tory of the

Bank's development began. Fromthe Bank came out East Germany,Hungary and Poland, and in place ofCzechoslovakia formed the CzechRepublic and Slovakia, and they be-came members of the Bank. Hun-gary in 2015 returned to the IIB.Thus, today the members of the In-ternational Investment Bank arenine countries: Bulgaria, Vietnam,Hungary, Cuba, Mongolia, Russia,Romania, Slovakia and the CzechRepublic. Today the bank providesthree continents: Europe, Asia andLatin America. Totally, the coun-tries-members of the bank occupy14.4% of the Earth's territory, andtheir population is 4.1% of theworld's population. Thus, IIB be-comes an economic bridge linkingcountries located on these conti-nents. Russia is the main shareholderof IIB, it owns almost 50 percent ofthe paid part of the authorized cap-ital of the bank. The mission of thebank is to promote socio-economicdevelopment, increase the welfareof the population and economic co-operation of member countries. In

accordance with the mission and ob-jectives, the main directions of thetransformation and the tasks are de-fined, the implementation of whichwill enable IIB to successfully devel-op and actively support the sustain-able development of member coun-tries.

Over the past 6 years, the Counciland the Bank's Board have been car-rying out purposeful work to trans-form the IIB into a modern financialdevelopment institute. An impor-tant stage in the Bank's reform wasthe decision of the 101st meeting ofthe Bank's Council of May 8, 2014(Havana, Cuba) on introducingamendments to the Agreement onthe formation of the InternationalInvestment Bank and its Charter. Allmember countries approved andsigned the Protocol on Amendmentsto the Agreement on the Formationof the International Investment Bankand in the near future, after receiv-ing the written consent from allmember countries regarding the im-plementation of the internal proce-dures for ratification of the Protocol,the Bank passes to the application ofnew statutory documents. The goalsand objectives of the bank are de-fined in a new way. The Bank, being

a multilateral development institu-tion, has as its main objective thepromotion of economic growth, theenhancement of the competitivenessof national economies, the expan-sion of trade and economic relationsand the possibility of interaction inthe investment sphere in the inter-ests of the member countries. Refus-es from the principle: one countryhas one vote. Henceforth, in makingdecisions in the Board of Governorsand in the Board of Directors, eachmember of the Bank is vested withthe number of votes, in proportionto the amount of its share in the paidshare capital of the Bank. Increasedauthorized capital to EUR 2.0 billionand the unpaid portion of the quotasdistributed among members of theBank is capital on de-mand, which will beused to increase thepaid authorizedcapital of theBank. Based onthe experienceof internation-al financial in-s t i t u t i o n s ,the bankmoves to athree-tier

THE INTERNATIONAL INVESTMENT BANK (IIB) IS ONE OF THE OLDEST DEVELOPMENT BANKS IN THE POST-SOVIET SPACE. IT WAS ESTABLISHED IN 1970 BY MEMBER COUNTRIES OF THE COUNCIL FOR MUTUAL ECONOMIC ASSISTANCE (CMEA) FOR THE IMPLEMENTATIONOF INVESTMENT PROJECTS OF THE MEMBER COUNTRIES OF THIS BLOC. INITIALLY, ALL FOR-MER SOCIALIST COUNTRIES WERE ITS FOUNDERS. THE AGREEMENT ON THE ESTABLISHMENTOF IIB AS AN INTERNATIONAL FINANCIAL INSTITUTION WAS REGISTERED IN THE UNITED NATIONS SECRETARIAT UNDER NO. 11417. IIB'S HEADQUARTERS ARE LOCATED IN MOSCOW,AND SINCE 2015 THE EUROPEAN REGIONAL OFFICE OF THE BANK OPERATES IN BRATISLAVA.IN SOVIET TIMES, IIB WAS THE LARGEST INVESTMENT BANK IN THE TERRITORY OF THECMEA MEMBER COUNTRIES AND DUE TO ITS FINANCING MANY LARGE FACILITIES WEREBUILT AND PUT INTO OPERATION. OVER THE ENTIRE PERIOD OF ITS ACTIVITY, THE BANKTOOK PART IN LENDING TO MORE THAN 200 FACILITIES IN VARIOUS COUNTRIES AND PROVIDED LOANS WORTH MORE THAN 7 BILLION EUROS.

A

management system. The Bank'smanagement bodies are the Board ofGovernors, the Board of Directorsand the Management Board. Thehighest collegiate management bodyof the Bank is the Board of Gover-nors. The Board of Directors is thecollegial management body of theBank, which exercises overall man-agement of the Bank's activities. TheIIB member countries are faced withnew tasks related to ensuring not on-ly economic growth, but also a qual-itative improvement in the life of thepopulation, formation of a favorableenvironment for the development ofman and society, ensuring long-termprospects for socio-economic devel-opment, and deepening the develop-ment of economic cooperationamong member countries of theBank. These and other time factorsare taken into account in the trans-

formation of IIB into a modern mul-tilateral development bank.

An important stage in the furtherdevelopment of the Bank, was thesuccessful implementation of the IIBDevelopment Strategy for 2013–2017,approved by the Council of theBank in June 2012. One of the mostimportant directions for the imple-mentation of the Bank's Strategy iscredit and investment activity. Thebank refuses from the old practice ofpoint-to-point lending facilities andgradually shifts to new priorities ofcredit activity, in particular, to par-ticipate in syndicated lending and toprovide investment resources to re-gional and national financial institu-tions to support small and medium-sized entrepreneurs.

The spectra of the products andservices provided are substantiallyexpanded, first of all, within the

credit and investment activities ofthe Bank. For successful develop-ment of lending activities, the Bankpays special attention to the forma-tion of the client base, which in-volves attracting more reliable bor-rowers and expanding the geo-graphical diversification of the loanportfolio by strengthening the coun-try approach, which implies greaterproportionality between the shareof the particular member country inthe bank's capital and the amount ofcredit resources allocated by thebank for borrowers from this coun-try. Within the framework of theBank's Strategy for 2013-2017, the IIBBoard together with its membercountries developed and imple-mented country strategies that takeinto account the national interests ofthe member countries, as well as theeconomic situation in them. In par-


ticular, in determining the most im-portant prospects for the positioningof IIB in each of the member coun-tries, the level of development of itsfinancial and credit system is takeninto account, as well as the need toinvest in certain areas of the econo-my. Thus, the Bank's activities arefully oriented towards the membercountries and is guided by the prin-ciple of replenishment of nationaleconomies of the member countriesof the Bank. This made it possible tosimplify the procedure for raisingfunds on the world capital marketon acceptable terms, includingthrough the issue and placement ofEurobonds by the Bank. The bankreceived international investment-grade credit ratings: The interna-tional rating agency Fitch Ratingshas assigned IIB a long-term IDR atthe level of «BBB» and a short-termIDR of «F2», a «positive» outlook.The Chinese rating agency Dagongassigned IIB a long-term IDR «A», apositive outlook. The internationalrating agency S&P assigned Long-term IDR at «BBB+» and Short-termIDR «A-2» to IIB a «positive» out-look,The Moody’s «Baa1» a «posi-tive» outlook. These ratings are cur-rently the highest among all finan-cial institutions based in Russia. Dueto the receipt of these high invest-ment ratings, IIB, for the first time inits history, gained access to fundingin the stock market, attracting re-sources, including from the largestinternational financial structures.

In accordance with the imple-mentation of the Bank's Strategy,shareholders take step-by-step meas-ures to increase the Bank's own re-source base. For the first time sincethe bank was founded, it was decid-ed to capitalize on it in the amountof 176 million euros, in particular76.0 million euros from retainedearnings of previous years and 100.0million euros from additional con-tributions from member countries

of the Bank. Over the past five years,the Bank's own funds, includingpaid-up share capital, have increasedby more than 90 percent. The resultsof the Bank's activities in 2013 -2017consolidate its new quality as a mod-ern multilateral institution of devel-opment, demonstrate the success ofthe comprehensive reform and thefirst results of the implementation ofthe updated development strategy.The bank carries out with one party,more conservative, but with anotherrelatively balanced credit, invest-ment and deposit policy. In onewords, the Bank began to form a bal-anced strategy in the credit, invest-ment and deposit spheres. As a re-sult of these measures, the financialposition of the Bank becomes evenmore stable compared to 2012 andthe balance sheet structure of thebank is improving. Over this period,the loan portfolio has more thandoubled. As of December 31, 2015,the Bank's asset is 1.1 billion euros,and thus, compared with the end of2014, assets increased 2.6 times. Thecapital adequacy ratio of CAR in ac-cordance with the requirements ofthe Basel Committee on Banking Su-pervision (Basel II) was 37.85%,which is a very good indicator char-acterizing the reliability and sustain-able development of the Bank.

Successfully implementing theIIB Development Strategy for2013–2017, from the year 2018, theIIB is gradually moving to a newstage of its development. The Coun-cil of the Bank in 2017 approved anew Development Strategy for theBank for 2018–2022. and thus sincethis year, the Bank is moving into anew strategic cycle. In order to im-plement the new IIB DevelopmentStrategy for 2018–2022, in March2018 the Bank's Management Boardapproved the IIB Business Plan for2018-2020 as a target and set moreambitious tasks until the end of2020. For example, by 2020, the

Bank's assets will increase by 2.4times as against 2015 and by 53%compared to 2017. The loan portfo-lio will increase by 46.8% comparedto 2017, and own funds by 10%. Inaccordance with the decision of the108th meeting of the Council of De-cember 8, 2017 (Bratislava, Slova-kia), the Bank's Management Board,since 2018

launches a new IIB capitalizationprogram, and Mongolia has alreadyincreased its share in the authorizedcapital in the amount of 2.0 millioneuros since the beginning of this year.

Over the past five years, IIB hasestablished business relationshipswith the main economic institutionsof member countries, in particular,chambers of commerce and indus-try, national development banks,profile ministries and departments,as well as international financial in-stitutions. IIB became a member ofthe International Development Fi-nance Club (IDFC).

Strategy implementation: larger loan portfolio

The participation in syndicated lending together with theleading development institutes:

> EBRD — loan to XacBank of Mongolia, the forth importantbank and the leader in lending to small business in thecountry;

> International Financial Corporation — loan to Xac Bank of Mongolia, the largest lender in the country, and toTranscapitalbank, which ranks among top 50 Russianbanks by assets and capital;

> The Dutch Development Bank — loan to Trade and Devel-opment Bank of Mongolia;

> VTB Capital — loan to the second largest phone companyof Bulgaria Vivacom;

> Vnesheconombank — loan for construct completion of the third and the forth blocks of Mochovce nuclearpower plant (Slovakia).

Opening of credit lines to special financial intermediariesfor financing of SME in member-states: Bulgarian Develop-ment Bank (Bulgaria), MSP Bank (Russia), VietinBank, Ro-manian leasing company BTLeasing, Trade and Develop-ment Bank of Mongolia. Opening of credit line to EXIMBANKof Russia for financing of foreign trade operations. Issuinga loan to Centrinvest Bank for SME lending.

Reference

25


IIB closely follows the develop-ment of the integration process andthe financial sector within theframework of the Euro-Asian Eco-nomic Union (EAEU). The situationin the banking sector of the membercountries of the EAEU confirms ourpositive assessment of the prospectsfor the development of the bankingsector in this region. Successfully de-

veloping business cooperation withthe Eurasian Development Bank(EDB). The International Invest-ment Bank and the Eurasian Devel-opment Bank signed on November21. 2014,Memorandum of Under-standing aimed at expanding mutu-ally beneficial cooperation betweenthe two development institutionsand working in closer cooperation

in financial markets. The limit ofcredit risk is established for treasuryoperations on EDB. A striking exam-ple of cooperation between our twobanks was the loan agreementsigned in March 2017 between theIIB, the Eurasian Development Bank(EDB) and the limited liability com-pany Nord Hydro-White Threshold(LLC NGBP) on financing the con-struction of small hydroelectricpower stations BeloporozhskayaGES-1 «and» Beloporozhskaya HPP-2 «in the Republic of Karelia at theexpense of credit funds from two ofour banks.

In addition to Russian banks, IIBis expanding cooperation with somebanks of member countries of theEurasian Economic Union, in partic-ular, Armenia, Belarus and Kaza-khstan. The Bank established acountry limit on Armenia and suc-cessfully cooperates with 3 banks —CJSC Armbusinessbank, CJSC Ame-riabank, CJSC Ardshinbank on tradefinance transactions. The Belarusiandirection of the Bank's activity ex-pands every year and IIB invests inthe economy of this countrythrough systemically important Be-larusian banks. Development Bankof the Republic of Belarus (theDBRB), VTB Bank Belarus, and Bel-gazprombank of the Republic of Be-larus are our main partners.

The International InvestmentBank is an open organization. Notonly countries but also internationalfinancial organizations that sharethe Bank's goals and principles canbe admitted to the Bank, as well aswilling to assume the obligationsarising from the Agreement on theformation of the bank and its char-ter. Participation in the IIB does notimpede the implementation and de-velopment of financial and businessties between member countriesamong themselves, with other coun-tries and international monetaryand financial organizations.

Main assets articles of IIB, million EuroResource: www.iib.int/files/presentation/prezentaciya_mib.pdf

450

400

350

300

250

200

150

100

50

031.12.2011 31.12.2012 31.12.2012

Monetary fundsDeposits in financial institutesInvestment securitiesLoan portfolio net of reservesInvestment property,capital assets and other assets

31.12.2014 31.12.2015 31.12.2016

103,7

71,5

111,2

13,9

51,0

117,7

100,1

91,8

8,449,1

123,2135,9

39,119,3

96,4111,8

162,8

34,3

65,7

240,3

102,7

241,1

100,4

59,4

306,3

96,0

283,7

45,0

54,0

363,0

BANKING SYSTEM OF THE

COUNTRIES OF EURASIA

BRATISLAV PEJAKOVIĆM. Sc., Secretary General of The Association of Montenegrin Banks

THE BANKING SECTOR REFORM IN MONTENEGRO

According to the 2017 World BankReport for Montenegro, the growthin GDP was 4.4% and is leading in the region

“

27

THE ASSOCIATION OF MONTENEGRIN BANKS IS A NON-PROFIT ORGANISATION THAT WORKSTHROUGH MEMBERSHIP FEES. THE ACTIVITIES OF THE ASSOCIATION BODIES ARE HARMONISEDTHROUGH THE ACTIVITIES OF THE ASSOCIATION, THEREBY ENSURING THAT THE DECISIONSREFLECTING THE PROFESSIONAL POSITION ARE EXECUTED. THESE DECISIONS MAY DIFFERFROM THE POSITIONS OF THE GENERAL PUBLIC, WHEREBY THE ASSOCIATION MUST BRIDGEMISUNDERSTANDINGS. WITH REGARD TO CREATING BETTER ENVIRONMENT FOR BUSINESSAND RAISING THE LEVEL OF COMPETITIVENESS OF THE ECONOMY IN GENERAL, THE UBCGPROMOTES QUALITY COOPERATION THROUGH CONSTANT DIALOGUE AND PARTNERSHIPWITH THE REGULATOR, THE BUSINESS SECTOR AND PUBLIC INSTITUTIONS.

www.ubcg.info


the more dynamic economicgrowth. The current tax regime is es-timated to be one of the most com-petitive in Europe, with a propor-tional corporate income tax of 9%and various tax incentives for largeinvestors.

For the period 2016–2017, infla-tion is projected on the basis of in-flation trends projected in the Eu-ropean Union, where price stabili-sation is expected in 2018 with theexpected annual inflation ofaround 2%. According to the 2017World Bank Report for Montene-gro, the growth in GDP was 4.4%and is leading in the region. Non-performing loans fell from almost26% at the level of the banking sys-tem in 2011 to currently around 7%,thanks to the reactions of the regu-lator and the commercial banks inMontenegro.

The work on the reliability andcomparability of financial reportinghas been ongoing, since it poses, assuch, the preconditions for the effi-cient financial market and the possi-bility of minimizing the risk. Finan-cial institutions (banks, insurancecompanies, captain market partici-pants, investor protection schemesetc.) manage their business riskswith clients and total risks in theiroperations based on available finan-cial information. It is therefore ofgreat importance that regulators andfinancial market supervisors influ-ence the quality of financial report-ing of these institutions regulatedand supervised by them. Theyshould also influence these institu-tions to require from their clientsand those that expose them to highrisk to submit in the process of riskmanagement (when approvingloans, issuing shares and other finan-cial instruments, insurance businessetc.) verified, qualitative and timelyfinancial reports.

The Association of MontenegrinBanks and the Chamber of PublicEnforcement Officers seek to defineforms of cooperation in order toachieve, in a legitimate and meaning-ful manner, mutual cooperation andcommon functioning with regard tothe compliance with positive legisla-tion regulating each of these two ac-tivities, with particular attention to:

— rules and bank’s compliancewith the requests of the public en-forcement officers;

— public enforcement officers asbank clients.

The principles for the establishmentof a deposit guarantee scheme in theEU are laid down in the 1994 Direc-tive (Directive 94/19/EC) andamended Directive from March2009 (Directive 2009/14/EC). In ad-dition to the common reasons relat-ed to creating the conditions for theharmonised development of creditinstitution activities and the im-provement of free movement of cap-ital, the main reasons for proposingand adopting the Directive94/19/EC are the establishment of acompulsory deposit guaranteescheme as an essential element forthe completion of the process of es-tablishment of the internal marketand the necessary addition to thesystem of credit institutions supervi-sion through the joint assistance tosingle market participant in case offailure of any one of them. In March2009, due to the urgency, guaran-teed deposit amounted to 50,000euro in the EU, but there is also apossibility of considering guaran-teed deposit of 100,000 euro.

It is important to note that eachinsurance of deposit represents high-

ssociation of MontenegrinBanks (the UBCG) is

aimed at strengtheningconfidence in the

banking sector. Fifteen banks li-censed by the Central Bank of Mon-tenegro, as a regulator of the bank-ing market, operates in the bankingsystem of Montenegro. The UBCGrepresents and displays the com-mon positions of all UBCG mem-bers, and as such, it promotes co-op-eration with domestic institutionsand participates in the design oflaws and regulations related tobanking business. The Associationmonitors the trends of modernbanking and initiates adequatetraining of bankers. The quality ofwork is improved through adequateco-operation with similar foreign as-sociations and by applying bestbanking practices, trends and stan-dards of more developed bankingand business systems. The activityof the Association is realisedthrough the work of its bodies: theAssembly, the Management Board,the Secretary General, the Court ofHonour and Arbitration.

Business environment significantlyimproved in the past ten years inMontenegro through the adoptionof strategic documents and sets of le-gal documents, which were alignedwith the EU standards, as well asthrough the implementation of insti-tutional and fiscal system reforms,improvement of the framework forthe activities of the financial sector,payment systems and other keybusiness areas. Changes and transi-tion have their own way, structuralaction and speed, where shifts areevident to the market economy andbetter development of a private ini-tiative. In line with the policy ofopenness, the competitive tax sys-tem and the evolving regulatory sys-tem, the contributions were made to

Financial Reporting

Banks Relationships withPublic Enforcement Officers

Follow up of Principles,Practices and Resources of the Deposit GuaranteeScheme

Business Environment

A

er degree of safety. In addition, thenew law significantly shortened thepayment deadline (from 90 days to20 days and, as drafted under thenew law, to 7 days). In Montenegro,the Deposit Protection Fund pays upto 50,000.00 euro of guaranteed de-posits since 1 March 2013. The BankResolution Law is in the process ofadoption and it will be an additionalguarantee for clients in banking op-erations. These are the processes thatresult from the alignment with theEU regulations. However, we had tokeep in mind how this is reflected onthe obligations of banks, the costs ofalready existing burdens on banks'operations and processes. Therefore,it was insisted on the transition peri-od and the length of the implemen-tation. To that end, the Associationactively participates in decision mak-ing process.

The uncertainty since the beginningof the global financial crisis has be-come increasingly important inmacroeconomics. The shocks of un-certainty are increasingly stressed asnew causes of business cycles andthe uncertainty spills over to the re-al sector through the various chan-nels of economic entities’ activities,and thus the banking sector. The fo-

cus is on the banking market, as sav-ings and borrowings are observedfrom three sectors being house-holds, corporate and the state. As asmall and open economy, Montene-gro is extremely vulnerable to exter-nal shocks. This is why the impactof uncertainty from the EuropeanUnion is particularly observed. Ingeneral, two indicators of domesticuncertainty are defined: the volatil-ity of the compulsory index and theuncertainty of consumers based onthe survey of the Montenegrin Sta-tistical Office — MONSTAT. All threeindicators of uncertainty corre-spond to basic stylized facts: uncer-tainty is countercyclical and is theleading variable in relation to GDP.It is shown how the growth of un-certainty affects different house-holds and companies in relation tothe state. Households and compa-nies reduce savings and borrowings,but with a time lag of ten months.The state, on the other hand, firsttries to act preventively by increas-ing savings and reducing borrow-ings. Households and companies arewaiting to make decisions on sav-ings and borrowings until uncer-tainty spills over to the real sector.Nevertheless, uncertainty has notproved to be a key determinant inmaking decisions on savings andborrowings. Namely, the shock of

uncertainty explains up to 15% ofvariation in savings and borrowings.It is more significant for households,while the impact on state decisionsis very limited, or almost trivial (lessthan 5%). We are pleased to pointout that the uptrend of deposits inMontenegrin banks, both corporateand retail, has steadily increasedsince 2006 despite lower interestrates on deposits with banks. There-fore, solvency and liquidity at thesystem level is significantly abovethe prescribed levels.

The banking sector reform is a signif-icant element of a country's transi-tion process. It is due to the fact thatthe developed banking system is aprerequisite for the development ofentire economy and a driver formany other areas of restructuring. Asound and stable banking sector en-sures the confidence necessary fordomestic and foreign capital invest-ments. A quality banking sector alsoprovides initial capital for perform-ing business activities, especially forsmall and medium-sized enterprises,which are the generator of econom-ic growth. The Association of Mon-tenegrin Banks is dedicated toachieving these objectives throughthe positive practice and the ongo-ing process.

External Impacts on Business

Conclusion


practice

ANDREA BOLDIPresident of Arezzo Fiere e Congressi srl

Born on July 17, 1967President of the Association of Jewelry Enterprises of Italy, President of the Asso-ciation of Art Craft Enterprises of Italy, Counsellor of crafts in the Chamber of Tradeand Industry of Arezz. Since 2006 — Head of Jeweler Association of Arezzo, since2013 he is the President of Art Craftsmen Association of Tuscany. Member of theExecutive Council of the Association of Art Craft Enterprises of Tuscany, Co-founderof the Jeweler Council of Arezzo, which united four regional associations. Presidentof Arezzo Fiere e Congressi since 2014 (organizer of exhibition Arezzo Gold). Todayhe is a member of the Supervisory Board in Nemesi SRL, engaged in jewelry.

DEVELOPMENT PROSPECTS OF PRECIOUS METALS SECTOR

GOLD ITALY

www.arezzofiere.it

a short peri-od of timethe followingc o m p a n yUNOAERRE

has become the largest in the world, ithas generated then the filiation of oth-er small production companies, 1,200only in the city of Arezzo and about10,000 in the national territory. Theproductive vocation has always beengeared to exports so that more than90% of the productions of jewels aredestined for foreign markets, reachinglevels of production in the 90s equalto more than 500 tonnes per year.

The birth of this sector has thengenerated cascading the rise of pri-mary reality in the field of recoveryand refining of precious metals fromthe waste that has occupied the po-sitions of international leadership al-so in the recovery of metals from thewaste of mine, electronic cards, cat-alytic converters and other. Theserealities now generate a totalturnover of over 6 billion euro in thecity of Arezzo alone.

Based on this fact, a small provin-cial town of 100,000 inhabitants,Andrea Boldi, creates a companyNemesis Srl, which first introducesthe rapid manufacturing in the goldsector, applying the technique of 3dprinting in the production of jewel-ry, the technique which allows therealization of artifacts directly fromCAD design, and becomes a point ofreference of technological innova-tion in the field of jewelry.

In

Then, Andrea Boldi becomesPresident of the goldsmiths of Arez-zo, President of the Italian gold-smiths of Italian artisans and crafts-men and President of the artistic sec-tor of the Italian craftsmanship. In2014 he became the President ofArezzo Fairs and Congresses whichis the structure of promotion of thewhole field of made in Italy jewelrywith the event of world importanceOROAREZZO, that takes place inthe same city for 39 years, with theparticipation of over 600 best com-panies in the sector of Italian gold-smith, and with the participation ofinternational buyers with a turnoverof more than 2,5billion euro.

With this background, AndreaBoldi approaches the Fair realitywith the intent to join together in acoordinated manner the whole sec-tor of precious metals in Italy, in or-der to provide a unique and reliable

interlocutor able to approach in aneffective and concrete manner themain stakeholders in the world. Thepolitical events and the strategies ofmajor financial groups, mainly of An-glo-Saxon countries, have led to theparadox that the international goldand precious metals market is in thehands of a few players and from thecountries which do not have eventhe direct availability of those re-sources and that with unfair and uni-lateral regulations prevent the possi-bility to create stable direct relationsbetween the raw material holdersand the transformers of the same.

The short-sighted greed of suchgroups strongly advocates carelesssanctions, based on unfounded as-sumptions to Russia, promoters ordirect supporters of governmentsthat based on the patently falsenews, have destroyed Iraq and pos-sessed more or less directly to a large

part of the gold reserves of the samecountry, maintaining a strongly ag-gressive and oppositional attitude toany right-thinking force able tobreak their position of power.

In order to prevent the growth ofworld alternatives politics such fi-nancial groups have acted in variousdirections:

1. To limit the access of operatorsto the pure metal, through interna-tional regulations

2. To hold tight credit and financefor those who do not accept this sys-tem

3. To take the action with bureau-cratic power directly to restrict theoperation of holdings.

4. To suddenly change the dy-namics of purchasing in order toweaken the entire productive sys-tems and to prevent that any othercountry can go ahead of them (ex.Italy).

FROM THE BEGINNING OF THE LAST CENTURY, ITALY HAS BEEN A LEADING PRODUCER OFJEWELRY AND TRANSFORMER OF GOLD INDUSTRY IN WESTERN EUROPE. THIS IS THE FRUITOF A SECULAR TRADITION THAT HAS ITS ROOTS IN THE HISTORY OF ITS ANCIENT INHABI-TANTS, FIRST THE ETRUSCANS, COMING FROM THE AREA OF CURRENT IRAQ, THEN THE RO-MAN EMPIRE WHICH IN ITS PERIOD OF GREATEST SPLENDOUR HAS REPRESENTED THE MAINADMIRER OF PRECIOUS METAL. THE ITALIANS HAVE ALWAYS BEEN PEOPLE OF ARTISTS ANDCRAFTSMEN; OVER THE CENTURIES THEY HAVE DEVELOPED INCREASINGLY REFINED WORK-MANSHIP TECHNIQUES AND IN 1926 FOR THE FIRST TIME THESE TECHNIQUES WERE APPLIEDTO INDUSTRIAL PRODUCTION IN THE CITY OF AREZZO, SITUATED NEAR FLORENCE IN TUS-CANY, THE HOMELAND OF THE ITALIAN RENAISSANCE.

In the light of these analyzes, theneed to achieve rapidly to strategiesand processes capable to change theprospects of development of the Ital-ian goldsmith's sector and to pro-mote the interchange with the partof the world which appears at themoment more dynamic and able togrow, Andrea Boldi has joined intoa dynamic and forward-looking eco-nomic organization such as FBAEAC, able to create synergies andcollaborations between operators inthe various countries, to generatesignificant prospects for their devel-opment.

Table #1 data shows the export ofpure gold of the city of Arezzo andthe countries of destination.

Table #2 data shows the export ofjewelry of three main goldsmith’sdistricts ( Arezzo, Vicenza, Valenza)and Italy in 2016.

The plan of activities that we aregoing to pursue in the Associationwill be carried out in the followingdirections:

• creation of stable relations be-tween Eurasian area raw materialextractors and operators/transform-ers from Mediterranean Europe;

• technology transfer and know-how, between the said countrieswith the settlement of productive re-alities in the former USSR countries;

• promotion of Made in Italygold and jewelry and the supportfor the development of Made in


SwitzerlandFranceUSAU. K.SpainGermanyWorld

867 570 060458 946 442170 251 672147 733 845154 713 593124 163 042

2 108 844 591

1 134 817 487359 660 885162 908 793125 524 336136 161 85055 404 157

2 202 403 532

1 458 307 372531 405 069184 932 601130 227 794126 383 593

61 231 4462 631 345 526

+30,8–21,6–4,3

–15,0–12,0–55,4+4,4

+28,5+47,8+13,5+3,7-7,2

+10,5+19,5

Table # 1The export of pure gold of the city of Arezzo and the countries of destinationReference: data processing ISTAT-Coeweb

Countries EXP2014 EXP2015 EXP2016 Var%2014-2015

Var%2015-2016

JewelleryTechnology • electronics • other indastrial • dentistryInvestment • total bar and coin

demand • Physical bar demand • official coin • medals/imitation coin • ETFs & similar

productsCentral banks & other inst.Gold demandLMBA gold price, U$/oz.

2055,0460,5326,688,345,6

1633,11203,6

920,6195,887,2

429,6

79,2

4227,71224,5

2097,3428,6316,176,336,2

1732,51500,4

1188,3228,184,1

232,0

480,8

4739,21571,5

2138,7381,3288,364,628,4

1613,81307,7

1011,9185,4110,4306,1

569,3

4703,11669,0

2498,8355,9279,253,723,0

810,91722,9

1352,1269,8101,1

–912,0

623,8

4492,61411,2

2498,8348,7277,551,219,9

867,81052,1

767,8204,8

79,5–184,3

583,9

4299,21266,4

2411,6332,0262,151,018,9

949,61074,7

775,3224,3

75,1–125,1

576,5

4269,81160,1

2053,6323,4255,649,818,0

1595,51048,7

776,3207,265,2

546,8

389,8

4362,21250,8

2135,5332,8265,350,616,8

1231,91,029,2

770,9186,9

71,3202,8

371,4

4071,71257,2

+4+3+4+2–6

–23–2

–1–10+9

–63

–5

–7+1

Table # 3Gold demand (tonnes)

%*20172016201520142013201220112010

UAEHong KongUSAWorld

624 612 547223 248 380147 622 356

1 814 702 980

–16,4+16,8+24,7–1,8

Table # 2The export of jewelry of three main goldsmith’s districts (Arezzo, Vicenza, Valenza) and Italy in 2016Reference: data processing ISTAT-Coeweb

* Year-on-year% change.

Arezzo Value Var%

SwitzerlandFranceUSAWorld

846 851 640265 278 03483 656 574

1 548 835 099

–9,4–6,2+9,9–7,5

Alessandria Value Var%

USAHong KongUAEWorld

224 423 554221 870 968193 815 240

1 343 644 565

+12,3–21,4–15,1–9,0

Vicenza Value Var%

SwitzerlandUAEHong KongWorld

1 163 463 686663 047 620899 376 112

5 928 179 245

–7,1–9,2

–14,8–4,4

Italy Value Var%

Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council

Russia, supporting the designschools and professionals dedicatedto the jewelry production;

• to bring the trade exchanges inthe field of precious metals of theformer USSR countries to at least 5 billion euro over the next threeyears;

• to encourage joint ventures incompanies with the creation ofmore productive units in variouscountries belonging to the Associa-tion;

• to promote the creation of a fi-nancial center dedicated to the ex-change of precious and of financialinstruments on them structured byexploiting existing platforms in thecountries participating in the Asso-ciation.

The cooperation will be a key in-strument also from the point of viewof the normative system transfer, inorder to provide conditions for thedevelopment of an independentmanufacturing in the accedingcountries.

Starting point perfectly matchingwith the current global needs anddemand of gold, divided by sectors,which is well exemplified in thetable data.

The analysis of these data makesit clear how the component result-ing from demand for the productionof jewelry represents the most signif-icant component of the gold requestin the world markets, with over 52%

33

S U P P LYMine productionNet producer hedgingRecycled gold

TotalD E M A N DJewelleryTechnology

TotalTotal bar and coindemandETFs & similar productsCentral banks & other inst.Gold demandSurplus/DeficitTotal demandLMBA gold price, U$/oz.

2744,1–108,81683,24318,5

2043,0460,5

2503,51203,6

429,679,2

4215,8102,7

4318,51224,52

2845,622,5

1667,74535,9

2090,3428,6

2518,91500,4

232,0480,8

4732,1–196,24535,91571,52

2911,5–45,31691,54557,6

2132,5381,3

2513,81307,7

306,1569,3

4697,0–139,34557,6

1668,98

3072,9–28,01262,64307,6

2722,4355,9

3078,41722,9

–912,0623,8

4513,2–205,64307,61411,23

3149,9104,9

1188,84443,6

2526,1348,7

2874,71052,1

–184,3583,9

4326,4117,2

4443,61266,4

3222,613,4

1119,74355,7

2455,5332,02787,51074,7

-125,1576,5

4313,642,1

4355,71160,06

3263,032,8

1295,14590,9

1995,1323,4

2318,51048,7

546,8389,8

4303,7287,2

4590,91250,8

3268,7-30,4

1160,04398,4

2122,0332,8

2454,81,029,2

202,8371,4

4058,2340,2

4398,41257,15

0–

–10–4

636

–2

–63–5

–618–4

1

Table # 4Gold supply and demand in the world market

%*20172016201520142013201220112010

IndiaPakistanChinaHong KongTaiwanJapanIndonesiaМalaysiaSingaporeS KoreaТhailandVietnamSaudi ArabiaUAEKuwaitЕgyptIranOther Middle EastТurkeyRussiaUSAКаnadaМеxicoBrazilFranceGermanyItalySpainU. K.Total aboveOther & stock changeWorld total

661,726,5

461,923,0

7,720,833,410,58,517,87,1

14,269,966,99,0

53,041,514,067,960,3122,316,722,828,720,713,734,212,626,0

1973,581,5

2055,0

619,324,2

557,242,3

7,115,933,48,28,9

18,66,9

12,854,756,38,4

34,145,015,373,664,4115,814,618,925,019,212,026,910,121,4

1970,6126,7

2097,3

595,226,1

599,447,67,2

16,135,28,49,7

16,69,1

10,549,049,4

7,742,145,215,265,967,7

107,113,215,327,115,710,722,68,6

20,01963,4

175,32138,7

617,423,3

938,882,69,917,041,210,514,322,914,911,8

66,464,411,7

45,663,723,079,979,7112,513,215,924,214,910,121,18,621,2

2480,6221,2

2701,9

627,521,8

806,860,0

8,416,436,510,214,022,912,412,568,456,014,245,139,325,268,167,0

116,614,015,822,214,210,019,98,0

25,72287,7

211,02498,8

662,323,2

753,451,47,0

16,538,98,412,225,612,215,669,551,413,238,337,223,849,038,0119,514,216,620,013,610,219,28,2

25,92204,4

207,22411,6

504,526,2

630,441,46,6

16,938,4

7,812,124,111,815,449,443,412,625,540,521,640,833,8118,813,816,918,913,410,319,08,3

25,21857,5

196,12053,6

562,728,1

646,944,36,3

16,638,6

7,311,822,711,416,545,742,813,022,045,421,941,335,0122,114,116,519,213,310,418,88,323,1

1937,2198,3

2135,5

+12+7+3+7–5–2+1–6–2–6–3+7–8–2+4

–1412+1+1+3+3+2–2+1–1+1–1+1–8+4+1+4

Table # 5Jewellery demand in selected countries, tonnes

%*20172016201520142013201220112010





of the total demand and therefore itis absolutely clear that the junctionof the extractive sector with that oftransformation can lead to economiesof scale and stabilization of demandmining of the former USSR coun-tries and at the same time produc-tion capacity and market penetra-tion for the countries, in the firstplace Italy, which will come in thisvalue chain. Another element of re-flection is given by the reduced boththe metal component absorbed fromthe huge mass of financial deriva-tives on it constructed which allowa few financial actors, as set out inthe first part of this article, to distortthe dynamics of price with an exces-sive leverage effect on a few real re-sources.

The table #4–6 instead, showsthe main components of gold supplyand demand in the world market.

The overall demand is basicallystable between the 4,300 and the4,600 tonnes per year, with a pro-gressive increase of extracted goldthan that from recovery, this showshow the countries holding of rawmaterials may gradually acquirepower in determining the dynamicsof the metal value itself. The sameconsiderations on financial leverageof derivatives and a further reflec-tion element is given by the compo-nent very low absorption by thecentral banks, corresponding to amoment in which is introduced intothe world a lot of new currency, andthis from the sense of how such aneconomy cannot that undergo a fi-nancial crisis in the short if this cur-rency does not find an anchorage onshared foundations to precious met-al, in innovative ways respect to theBretton Woods Institutions.

The study of the above data reflec-tion regarding jewelry demand inRussia and in CSI countries whichdropped from 167,6 tonnes to 109tonnes (2010–2017). Overall, althoughfalling, is an important question of



IndiaPakistanChinaHong KongTaiwanJapanIndonesiaМalaysiaSingaporeS KoreaТhailandVietnamSaudi ArabiaUAEKuwaitЕgyptIranOther Middle EastТurkeyRussiaUSAКаnadaМеxicoBrazilFranceGermanyU. K.SwitzelandAustriaOther EuropeTotal aboveOther & stock changeWorld total

340,17,4

183,81,2

–1,4–39,8

17,25,51,41,3

64,268,214,510,0

1,42,3

43,51,3

40,90,0

104,23,74,70,51,3

122,914,986,913,7

48,61164,1

39,51203,6

354,715,7

259,11,55,8

–52,327,49,84,27,9

106,690,617,711,91,32,3

53,22,071,90,0

82,25,92,90,96,5

142,417,6

96,815,1

55,81417,5

82,91500,4

319,013,2

257,02,05,0

–11,026,4

7,75,1

11,3100,973,816,910,70,92,1

57,02,3

48,10,0

53,23,93,11,02,7

108,215,1

62,210,441,5

1249,558,2

1307,7

341,220,9

406,72,68,53,9

46,910,36,517,7

138,987,918,314,11,27,1

64,03,9

104,20,075,15,72,51,41,9

133,311,661,713,040,0

1651,471,5

1722,9

206,013,9

198,51,48,3

–2,726,98,26,5

16,396,454,215,69,91,06,0

36,13,6

48,67,9

47,73,72,21,31,0

101,37,7

47,710,228,6

1013,938,2

1052,1

194,914,5

228,11,56,4

16,220,16,85,9

19,478,047,814,98,70,84,9

30,13,2

23,14,871,52,92,21,4

–0,5116,0

8,650,312,233,7

1028,446,3

1074,7

161,616,0

248,61,45,917,121,15,25,0

14,469,742,910,86,00,72,7

–4,43,4

29,43,7

93,03,62,01,3

–4,2110,8

11,345,610,827,0

998,350,4

1048,7

162,416,9

306,41,75,8

–2,820,25,84,817,7

64,037,49,95,50,72,5

18,33,5

52,43,1

39,42,62,11,0

–3,4106,310,042,59,7

23,3971,4

57,71029,2

258

20–2—

–411

–424–8

–13–8–8

6–8—4

78–17–58–28

9–19

—–4

–12–7–11–14 –315 –2

Table # 6Total bar and coin demand in selected countries, tonnes

%*20172016201520142013201220112010


USAGermanyIMFItalyFranceChinaRussiaSwitzelandJapanNetherlandsТurkeyIndiaECBTaiwanPortugalSaudi ArabiaU. K.KazakhstanLebanonSpainAustriaBelgiumPhilippinesVenezuelaAlgeriaТhailandSingaporeSwedenSouth AfricaМеxicoLibyaGreeceS KoreaRomaniaBISPolandIraqIndonesiaKuwaitЕgypt

8133,53373,62814,02451,82436,01842,61838,81040,0

765,2612,5564,8558,1504,8423,6382,5322,9310,3301,0286,8281,6280,0227,4196,4191,3173,6154,0127,4125,7125,3120,2116,6112,9104,4103,7103,0103,089,880,679,076,4

12345678910111213141516171819202122232425262728293031323334353637383940

7570—

68652

1853

66226

284

6139

402117543610777328

1036

601

10—48399

Table # 7Тоp 40 reported official gold holdings(as at Decemder 2017)

Country Tonnes % of re-serves

about 4 billion euro, on which tostart building an important pole ofproduction in Russia and other relat-ed countries through the exchangeof skills and technology, where FBAEAC is doing a promoter and Italyrepresents the spearhead of tradi-tion and quality.

A separate chapter deserves to bededicated to the policy adopted bythe central banks in anchoring theemissions of currency to the actualphysical gold reserves in the coun-try. As it can be seen from the belowtable, the reserves are not propor-tionate to the currency circulatingwhich is thus gradually emptied ofmeaning and sustained only by in-creasingly fragile conventions intrade.

In the end, we should try to givea pragmatic view of the currentframework and strategies to be putin the field, trying to identify threeareas to focus on; macroeconomics,microeconomics and the one thatwe should define as «fluidity sys-tem».

For Macroeconomics the effortsshould be concentrated on the cur-rent needs of the states or better stillof macro-regions to adopt develop-ment policies coordinated and inte-grated solutions that are focused onconquesting the market confidenceand the solidity of the currencyplaced at the basis of the exchangesbetween the same.

It is absolutely clear that policiesdesigned to disrupt and discredit ofeconomic blocs ( for examplethrough sanctions, or media discred-itation on financial markets) can onlybe contrasted by effective actions togenerate a suitable dynamic of funda-mental and therefore of the asset(gold, gas, oil, etc.) and confidence inexpansionary policies with a conse-quent increase in internal consump-tion and exports. It is therefore clearthat gold is the decisive tool for as-sessing the degree of solidity of a re-

gion combined with a policy thatlinks the currency, whether tradi-tional or newly created cryptocur-rency, to this indicator. The proof isthat in all emerging economies goldreserves are increasing.

Microeconomics means support-ing the manufacturing industry andtherefore the need to create newpotentials for the challenges facedby companies in the region and forthe need to be open to a new con-taminations and market dynamics.The closure of markets dictated byprotectionist policies of «untouch-able» balances (sanctions) and arti-ficial monetary dynamics leads tocritical issues for export-relatedcompanies, such as lack of financeproject and difficulty in action. Thecurrent challenge is to live this crisiscontext, from the Greek crisis orchange, then to maximize the op-portunities that are generated, opti-mizing production based on newquestions, with the creation of in-terchange between macro-regions,the exceeding of limits imposedwith sanctions, and the relocationof production and know-how ex-change between Made in Italy andMade in Russia.

For Fluidity of system, it shouldbe understood the ability to face theproblem of the denominator of eacheconomic «war» between macro-re-gions or the currency. It is necessaryto access the system liquidity but al-so to understand that we are in acontext in which the «currency»word is becoming anachronistic.Therefore, to encourage the creationof solutions that go from creatingfluidity in terms of just interbank re-lations, to an articulated fluidity inquotations of companies with thepossibility also for midrange compa-ny to access to a new potential in-vestors on new financial markets(creation of markets exchanges) upto experimentation and opening ofblock chain projects with a gold

base. It is necessary to give reliabilityto the sector, to contaminate re-gions, to create excellence, to go be-yond borders and to give trust andtools to all operators. This is thegreat challenge that FBA EAC wantsto face in the coming months.

35


INVESTMENTS AND STATE

All countries wish to be attractivefor foreign investors. That is why somany investment codes and invest-ment treaties are in force.

Actually, there is in the world,more than 3000 BIT containing var-

ious kinds of mechanism for disputesettlement.

Since the treaty of Lisbon, signed in2007 by 27 European States, the nego-tiation and the signature of new bilat-eral investment treaties are reserved tothe European authorities (articles206,207 and 218 of the treaty).

That means that no member ofEuropean Union is allowed to dis-cuss or approve an investment agree-ment with a non-EU country.

This situation is particularly im-portant concerning the arbitrationmechanism for Investor-State Dis-pute Settlement (ISDS) which is

BILATERAL OR MULTILATERAL INVESTMENTTREATIES TOWARD A NEW SYSTEM OF ARBITRATION FOR DISPUTE SETTLEMENTTHE EUROPEAN UNION APPROACH

The EU approach

Laï Kamara,International arbitrator, General Secretary of the World Organization of Experts,Counsels and Arbitrators (OMECA)*, EU Expert for «EU-Central Asia Rule of Law Platform»

* NGO accredited by The United Nations(Public Department of Information, Economicand Social Department)

practice

37

In Europe, in order to fightagainst the capital launderingand terrorism financing, the third directive 2005/60/CEhas developed the notion of «effective beneficiary».This European regulation permits to identify the real persons controlling entities and profiting from the income of private companies.

“

different from commercial arbitra-tion.

In this case, the issues have to bedecided in accordance with a treatyand the principles of public interna-tional law that leads to important fi-nancial and political implications,because countries may be seriouslyaffected by an investment arbitra-tion award.

For instance, in the case of CETAtreaty negotiated between EU andCANADA, the discussion about thesystem of arbitration is always con-tested by certain European States re-fusing the Anglo-Saxon private arbi-tration model.

Bilateral or multilateral invest-ment treaties main aim is the protec-tion of investor’s substantive rightsagainst arbitrary expropriation, na-tionalization, unfair and inequitabletreatment and discrimination.

On the other hand, a fair interna-tional arbitration system has to pro-tect the host State national sover-eignty.

The host State has to be sure thatan investor is definitely a real in-vestor and not a simple speculatoror middleman acting for foreign hid-den illegal interests.

In Europe, in order to fightagainst the capital laundering andterrorism financing, the third direc-tive 2005/60/CE has developed thenotion of «effective beneficiary».

This European regulation permitsto identify the real persons control-ling entities and profiting from theincome of private companies.

The efficiency of such a policyimplies a new duty for the nationalState of the supposed investor, in-quiries and inter-States cooperationfor data swap.

Fraud in international arbitration isalso to be watched.

According to the fact that by in-vestments treaties, States accepts theenforcement of the awards and donot grant their diplomatic protec-tion to their nationals, arbitrationcan be sometime a handsome shelterfor developing various strategiesagainst States.

That’s why it is essential to iden-tify the real investor (end investor)and the origin of companies’ assets(money laundering, secret funds in-vested for State or Governmentdestabilize ation, corruption …)

As arbitration has become a realand very lucrative business, it is alsonecessary to know the undergroundrelationships between third partyfunds, counsels and arbitrators.

Recently, we have seen the emer-gence of a new disloyalty in interna-tional arbitration: the refusal by pri-vate companies to pay their share ofarbitration costs, leaving the publicinstitution — generally claimant —assuming all the expenses.

As recent arbitration scandalshave put in light the special behav-iour of some arbitrators whose lackof independence and impartialityhas tremendously justified tostrengthen penalties for breach oftruthfulness, its seems necessary tocreate an incrimination of «interna-tional state swindle» against arbitra-tors, counsels, beneficiaries, andeventually litigation funds, as ac-

complices by establish a scale of dis-suasive sentences and negotiating aninternational prosecution agree-ment in the frame of internationalinvestment treaties.

Because investment arbitration in-volves more financial and politicalimplications than commercial arbi-tration as the contracting State, theinvestor’s country, the State seat ofarbitration and the States where theaward can be executed may be af-fected, a new transparent and publicsystem must be imagined.

In the new investment treatiesnegotiated by EU, it is proposed tocreate a court of arbitration, com-posed of qualified members with ac-knowledged competence and skillin arbitration, investment and pub-lic law, as the best means to insureall the parties about the seriousnessof this new dispute resolution sys-tem.

Clear definition of investments,of investors (stating clearly require-ments regarding place of their incor-poration and shareholding allowingthem to benefit from the system)and of substantive rights protectedunder the new convention is thus es-tablished.

The awards and courts decisionsrendered under the auspices of thatinstitution have to fall into the pub-lic domain, the traditional secretaround arbitration decisions beingno more acceptable when public in-terests are in balance.

The eastern Euro-Asian countriescould find a great interest to opendiscussions with European Union toreplace all actual bilateral invest-ment treaties by this new type ofconvention to promote European in-vestments and economic, financialand technologic transfers.

It could also involve the reverse.

Avoid fraud in international arbitration

Toward new internationalinvestment arbitrationcourts


ne of the mainevents at the Fo-

rum-2018 wasthe CaspianWeek

held with the support of the Swisscompany IntegralPetroleum. Caspi-anWeek is a meeting of world lead-ers of business, politics and other so-cieties. One of the guests of theCaspianWeek-2018 was the Presi-dent of Tatarstan Rustam Nurgaliye-vich Minnikhanov.

This year the partner of theCaspianWeek was SALUS in the per-son of Egor Ivankov. SALUS devel-ops international exchange trades. Ithas 10 subsidiaries in Russia and in15 countries of EAEU, CIS, Easternand Western Europe, Asia andAfrica. Its approach is open, and itspartners network expands rapidly.SALUS is a member and strategicpartner of Financial & Banking As-sociation of Euro-Asian Cooperation

(FBA EAC), of the Universal com-modity Exchange — Eurasian Coop-eration, of International Bank forEconomic Co-operation (IBEC), cre-ated in 1963. SALUS collaborateswith the International Research No-bel Center (IRNC) and with otherpublic organizations and associa-tions, global development institutes,legislative and executive authoritiesto create and develop a balanced,no-barrier global ecosystem of com-

Partners’ News

A WEEK IN DAVOS WITH CASPIAN VIEWWITH THE WORLD SHIFTING TO A MULTIPOLAR ORDER A VITAL NEED ARISES FOR COOPERATIONBETWEEN POLITICAL LEADERS, BUSINESSMEN AND OUTSTANDING SCIENTISTS WITH THE AIMTO BRIDGE OVER REGIONAL, POLITICAL AND NATIONAL BORDERS. THIS IS THE REASON WHYEVERY YEAR AT THE END OF WINTER FINANCIAL, POLITICAL AND BUSINESS ELITE CONCEN-TRATES IN A SMALL SWISS TOWN DAVOS. NO RESOLUTIONS OR ANY OTHER DOCUMENTS AREMADE HERE, BUT DAVOS FORUM IS AN OPPORTUNITY TO MEET AND DISCUSS IN AN INFORMALSETTING A LOT OF WORLD’S CRUCIAL ISSUES, SET BUSINESS CONTACTS, HOLD NO-TIE AND TETE-A-TETE MEETINGS. THIS YEAR THE WORLD ECONOMIC FORUM IN DAVOS WAS HELD ON JANUARY 22–26.

О

Andrey Heimonen,Marketing Director of Salus business solutions GmbHBerlin

39

modities and funds, to protect intel-lectual property rights on the prin-ciple of «Trade Diplomacy»

For a variety of reasons today theCaspian region is among those regionswhich affect world geopolitical situa-tion. Caspian region reflects globaltrends in economy, ethics, confes-sions, social environment and culture.

The slogan of the CaspianWeek is«Finisoriginependet» which means«The result depends on the start».The project CaspianWeek makes thefirst steps in Davos, it is organized forthe second time only but it is target-ing to success. 11 sessions of theCaspianWeek-2018 gathered 48speakers, more than 1200 guestsjoined different events of the project.

Cooperation development be-tween the Caspian region and therest of the world was one the goalsat the CaspianWeek-2018. With thisaim there were meetings of expertsin business, financial institutes,banks, logistic and transport, pro-duction and investment companies.Any business idea, no matter howbright it is, needs financing. So oneof the CaspianWeek partners wasVP Bank — one of the leading banksof Lichtenstein, created in 1956. Itsfocus area is structured assets and as-set management, investment adviso-ry for private clients and intermedi-aries. Today the bank is representedon Moscow, Vaduz, Zurich, Luxem-burg, Tortola (BVI), Singapore and

Hong Kong. VP Bank has reliable eq-uity capital and rating А — (S&P’s).

Another important task of theCaspianWeek is to introduce innova-tive technologies in the region. Thisyear much attention was paid to dig-ital technologies in financial sector,trade and logistics. The participantsdiscussed the implementation of thenew technologies in state and com-mercial projects, development of fi-nancial technologies, governmentalsupport and global cooperation inthese issues. One of the most interest-ing discussions at the CaspianWeekwas: «Bitcoin is dead! Long live cryp-to currencies!» involving AlexanderSloboda, Michael Hattman, Dr.Daniel Heller and Jeffrey Wernick.

General Director of SALUS Egor Ivankov with Head of Trading Integral Petroleum Dmitry Akopov (on left foto); with Project Leader, Caspian Week Maria Berezikova,Marketing Director of Salus business solutions GmbHBerlin Andrey Heimonen

Managing director of Integral Petroleum SA Murat SeitnepesovThomas Westh Olsen (Head of Private Banking Central& Eastern Europe, Member of Executive Management)


After bitcoin the discussion shiftedto other crypto currencies.

The establishment of Caspi-anWeek Digital Award was truly im-portant. The award aims to supportthe ideas of negative influence of ir-rational use of energy and energy re-allocation. CaspianWeek DigitalAward in the amount of $1 millionwill be presented to the one who

finds the most effective and the mostecological solution. The wrap-up isexpected next year at Davos-2019.

Among other topics of Caspi-anWeek was culture. The region hasa diversity of cultures and religionsas a result of empires and civiliza-tions on the shores of the CaspianSea. The peoples of the region havea lot to show to the world, and theinteresting cultural program at theCaspianWeek confirms this.

There was yet another eventworth mentioning at the Caspi-anWeek. Specifically for the Caspi-anWeek House Sergey Duboff, atenor and an artist, painted picturesabout the Caspian region includingRussia, Turkmenistan, Kazakhstan,Azerbaijan, Iran, Georgia, Turkey,Tajikistan. All the paintings have aunique QR code, by which you canread information about a country indifferent languages. The paintingsreflect reverential attitude of theartist to the culture and history ofdifferent countries, and attempt to

unite the past and the future, revealto the spectators as much informa-tion about each country, as possible.

10 paintings were put on auction.Egor Ivankov, General Director ofSALUS bought the picture aboutRussia. Now it is in the headquartersof SALUS in Moscow.

SALUS has a wide regional andinternational branch network. It isimportant for the Forum and espe-cially for the CaspianWeek, whichsupports cooperation of the regionwith the whole world.

On the first day of the Davos fo-rum the weather welcomed the par-ticipants with snow, drifts and longtraffic jams. We hope that the Caspi-anWeek helped to melt the ice. Thesun is bright in the region, and it wasbright in Davos.

It is pleasant to see that theCaspianWeek grows every year andgains strength in Davos. We hope forthe future, and next year we plan toinvite more participants to make theevent one of the main at the Forum.

Nevin Tevs (Client Advisor Private Banking), Enrico Muffeis (Financial Consultant)

Guests of the Caspian Week:Member of Federation CouncilCommittee on Foreign AffairsIgor Morozov, Sergey Dubroffand the Russian historian andpolitician Sergey Stankevitch[1], General Director of VirtuozTrading Limited Olga Lisitsina[2], the Formula 1 championJean Robert Alesi [3], PrimeMinister of Georgia GiorgiKvirikashvili [4], Prince of LibyaIdris bin Abdullah al-Senussi[5], Governor of Astana Inter-national Finance Center KairatKelimbetov [6]

1 2 3

4 5 6

www.abbanks.by

41

DIGIT IS PRIORITY

articipants of theround table discussed

the opportunities andprospects opened by the

Decree of the President of the Re-public of Belarus of December 21,2017 No. 8 «On the development ofthe digital economy» for the domes-tic banking system and the economyas a whole.

More about this, as well as possi-ble risks that banks should take intoaccount when introducing innova-tive digital technologies, said BorisLev, managing partner of law office«Lev, Sherstnev & Partners».

The legal aspects of applying theprovisions of Decree No. 8 werecommented on by Ivan Zhiznevsky,Deputy Director of the Administra-tion of the High Technologies Park.

Matvei Levant, Managing Part-ner of the International Bar Associ-ation, acquainted the audience with

the developments in the field of in-ternational legal crypto-regulation.

The head of the expert group ofthe company EXADEL Sergey Bon-darev devoted his speech to the pos-sibilities of using blockchain tech-nology in banking systems.

Anton Kulichkin, member of theExpert Council of the Association ofDistributed Registry Technology,analyzed the world system of cryp-to-instruments.

Aleksandr Kuschynski, Chairmanof the Association of BelarusianBanks, reported that Presidential De-cree No. 8 creates unprecedentedconditions for the development of ITindustry and gives serious competi-tive advantages to our country in thecreation of the digital economy ofthe 21st century. But it depends onthe heads, managers and specialistswho will implement them. On thebasis of High Technologies Park of

Belarus it is planned to create bankswith the participation of SectoralCouncil for the implementation ofDecree No.8 «On the developmentof the digital economy».

«For the banking system the imple-mentation of this document is a greatchallenge. We should clearly repre-sent the limits of our competence,have qualified specialists to work inthis direction. And they will need tobe trained. It is planning to developthe professional qualified standardsand modern training programs aimedat implementing the document.Banks as representatives of one of themost highly-equipped sectors of theBelarusian economy are interested inthis as no one else. Therefore, on be-half of the National Bank, our Associ-ation will take an active part in thiswork», — A. Kuschynski said.

Association of Belarusian Banks

A ROUND-TABLE MEETING ON THE TOPIC «OPPORTUNITIES AND FEATURES OF APPLICATION IN THE BANKING SYSTEM DECREE NO. 8 «ON THE DEVELOPMENT OF THE DIGITAL ECONOMY»WAS HELD ON FEBRUARY 12, 2018, IN MINSK. THIS EVENT WAS ORGANIZED BY THE ASSOCIATIONOF BELARUSIAN BANKS TOGETHER WITH THE LAW OFFICE «LEV, SHERSTNEV & PARTNERS». IT ASSEMBLED MORE THAN 100 PARTICIPANTS — REPRESENTATIVES OF THE NATIONAL BANK,BANKS AND NON-BANK FINANCIAL INSTITUTIONS, THE DEPUTY CORPS, THE BANKING PROGRESSING CENTER, THE HIGH TECHNOLOGY PARK, THE MINISTRY OF INTERNAL AFFAIRS,PROFILE BUSINESS ASSOCIATIONS, LEGAL AND IT-COMPANIES.

P

Partners’ News


INDUSTRIAL WAREHOUSE «AMEGA»

project

THE INVESTMENT PROJECT IMPLIES A CONSTRUCTION OF A VEGETABLES WAREHOUSE TO PROCESS AND STORE 30,000 TONS OF POTATOES, WITH SPECIAL REFRIGERATE AND VENTILATING EQUIPMENT. TO IMPLEMENT THE PROJECT IT’S PLANNED TO INVOLVE THE COMPANY CONNECTED WITH «TURN-KEY» ENGINEERING OF VEGETABLE WAREHOUSES(VMT-AGRO LTD.), AND TO BUY PACKING EQUIPMENT, MATERIALS, VENTILATING EQUIPMENTFROM SPECIALIZED COMPANIES. THE OUTPUT OF THE PROJECT WILL BE THE CLEAN PACKEDPOTATOES OF CATEGORY 4SM +.

THE COMPANY «AMEGA»,MEMBER OF FBA EAC, OFFERS COOPERATIONwww.amega.su

BACKGROUND. «Amega» Ltd. wascreated in March, 2017 in the Tularegion with the aim to construct anindustrial warehouse for potatoesstorage.

PROJECT ORIGINATOR. Group ofcompanies «Amega».

MAIN BUSINESS. Transportation.

REASON. The project was triggeredby the acute shortage of warehousecapacities for vegetables in the Tularegion and in Russia in general.

BUDGET. Total cost is RUB 1.6 bil-lion.

SCHEDULE. Start of construction —II quarter of 2018. Entry into ser-vice — IV quarter of 2020.

FIGURES. Project profitability esti-mated by project originator: > discount rate — 14.7%; > pay-back period — 8 years; > discount pay-back period — 10

years; > net present value (NPV) — RUB

62,6 million; > internal rate of return (IRR) — 16%.

MORE FIGURES. Financial struc-ture of the project: > owner’s funds: RUB 478.4 million

(30%); > borrowed funds: RUB 1.116 billion

(70%).

PROJECT FEATURES. The ware-house complex will include a high-tech vegetable storage to provide forfresh potatoes during the whole sea-son. To store potatoes we will builda warehouse (container type) withcapacity of 30 000 tons. The projectimplies three storage sheds with ca-pacity of 10 000 tons. There will bethree construction stages. The out-put yield will be put into storageand sold until the next June. Themain sales period is the second quar-ter of a year. In the fourth quarter ofa year (when putting into storage)spoiled potatoes will be sold (of cat-egory lower than 4+).

MARKETING. Most projects in thecountry do not meet modern re-quirements. There are only 20−25%modern warehouses. This projectwill create relevant microclimate inthe warehouse and decrease loses ofa product during storage and im-prove its quality, besides it will low-er energy expenses. These loses willbe decreased due to fast and effec-tive classification of vegetables withthe use of special equipment whichwill classify products by size,

ripeness, and reject spoiled and dis-eased yield. At the first stage themarketing strategy aims to enter themarket with a totally new productand gain consumers. At the secondstage the strategy aims to keep posi-tions, improve production and salechannels, enhance its market sharein the region and further.

AGREEMENT. Supply agreementsare concluded with the DefenseMinistry of Russia and large tradenets in the Moscow region and inthe Tula region.

PROJECT ADVANTAGES: > market niche: there is shortage of

warehouses; > support from the Tula region gov-

ernment; > demand for the product — potato

is the main crop in Russia; > availability of the largest mar-

kets — Moscow, the Moscow re-gion, the Tula region;

> new technologies.

43

DISTANCE FROM MOSCOW.

110 km.

Acceptance of fruit and vegetable products

Dry cleaning

Classification

Rejection of spoiled and diseased yield, besatz

Container packing

Storage of fruit and vegetable products

Sales of seasonal-storage

vegetables

Sales of long-storagevegetables

PRODUCTION TECHNOLOGY

In routine we usually don’t have a chance to see the beauty around us. To snatch a slipping moment and capture it is onlypossible for a photo camera in the hands of a receptive and creative person.

Financial & Banking Association of Euro-Asian Cooperation launches a new project — photo contest «THE WORLD THROUGHTHE EYES OF A PHOTOGRAPHER».

This contest is for true lovers of their motherland’s beauty, for those who take photos not for profession but for hobby, self-ex-pression, willingness to share joy from what they have seen and felt.

«THE WORLD THROUGH THEEYES OF A PHOTOGRAPHER»

OLGA KUPCHINOVABorn in Belarus in 1960. Economist

In the photo, the world around seems brighter

and more beautiful

44 EURASIAN F INANCIAL & ECONOMIC HERALD | #2(4)-2018

VENUE Russia, Moscow

PARTICIPANTSNon-professional photographers

from all countries without restrictionsare allowed to the contest

TIME LIMITSWorks are received

from February to October 2018, wrap-up on November 15, 2018

PHOTO STYLE«Countries and cities»,

«Native nature», «Self-artist», «World of emotions», «Snatch a moment»,

«Family album», «Package of impressions»,

«Incredible is close», «Proactive attitude»

PRIZEEach winner receives a laureate diploma

and a chance to become famous. Bestworks will be published in the Herald

E-mail: [email protected], [email protected], [email protected]Теl.: +7 495 663-02-08, 663-02-13, 663-02-19CONTACTS:

photo contest

45

IRINA BELONOSOVABorn in Russia in 1989. Eeconomist

A photo is the moment that will remain with me forever

TATIANA KALINABorn in Kazakhstan in 1980. Manager

Photography is a frozen instant of beauty

MANISH KUMARBorn in India in 1971.President of the Soltex Group Ltd

It’s a pity that I have an opportunity to relax with

a camera in my hands so seldom

46 EURASIAN F INANCIAL & ECONOMIC HERALD | #2(4)-2018

KSENIA TERESHCHENKOBorn in Russia in 1994. Legal Counsel

I value photos for the opportunity to cherish

lovely moments

photo contest

47

ELENA ALASAVICHYUTEBorn in Lithuania in 1977. Translator

I like to transfer the moodthrough photos

DEMCHIGJAV MOLOMJAMTSBorn in 1951 in Mongolia, Economist

I show my friends the places I managed to visit

GERMANY — RUSSIA:

BUSINESS-GRAVITATION REMAINS MOST REPRESENTATIVES OF GERMAN BUSINESS IN RUSSIA ARE IN FAVOUR OF LIFTING THE EUSANCTIONS AGAINST RUSSIA AS SANCTIONS DON’T ACHIEVE THEIR POLITICAL GOALS ANDCAUSE TANGIBLE FINANCIAL DAMAGE TO BUSINESS. BUSINESSMEN BELIEVE THAT THE DE-VELOPMENT OF EURASIAN ECONOMIC UNION (EAEU) WHICH INCLUDES RUSSIA, BELARUS,KAZAKHSTAN, ARMENIA AND KYRGYZSTAN, DOESN’T YET GIVE ANY ADVANTAGES FOR GER-MANY COMPANIES. AT THE SAME TIME, THEY AGREE WITH THE ABOLISHMENT OF CUSTOMDUTIES AND CUSTOM CONTROL AND NOTE THE GROWTH IN OUTLETS DUE TO THE EAEU, INPARTICULAR THE RUSSIAN MARKET.

Material for Thought

Tatiana Galander,Head of Russian Business Group the company PricewaterhouseCoopers in Germany


www.pwc.de

Since 2014, there has been a signifi-cant deterioration in the German-Russian foreign trade relations, aswell as relations with other coun-tries of the Eurasian EconomicUnion: for example, the decline inGerman-Russian trade amounted to30%. It is common knowledge thatthe European Union imposed sanc-tions against Russia; in response, in2014, Russia prohibited the importof agricultural products from theEuropean Union. This very prohibi-tion created preconditions for a sig-nificant growth of Russian agricul-ture. Nevertheless, this growthcould be beneficial for German andother foreign producers of agricul-tural machinery.

Today we see the first improve-ment indicators of German-Russianand in general European-Russianforeign trade relations, as well asconnections with the EAEU. For ex-ample, direct investments of Ger-man companies in Russia grew to €2,05 billion in the first nine monthsof 2016. This is more than the entireprevious year, not to mention theyear 2014, when German business,according to Deutsche Bank, mas-sively withdrew assets from theRussian Federation.

In addition, the export of prod-ucts of machinery sector of Germanto Russia increased by 22,5% in 2017and reached €5,3 billion. The growthis solid but it is not so impressive likein 2012 with the export in € 8 billion.

On January 12, 2017, a businessconference was held in Düsseldorf,devoted to prospects of Germanbusiness in Russia. This forum wasorganized by the the DüsseldorfChamber of Commerce and wascalled «Russia on its way from the ex-port market to the production site?»

Pragmatic Germans are skepticalabout the renewal of the exportboom with Russia. Obviously, the

problems of the world hydrocarbonmarket, the cheap ruble, theprospect of economic reforms in thecountry, mutual sanctions and, con-sequently, the low solvency of busi-ness and citizens are unlikely to leadto an increase in demand for Ger-man products manufactured out-side the Russian Federation. That iswhy the conference often heardsuch words as «localization of pro-duction» and «import substitution».

As follow from a separate surveyof the import substitution and local-ization, conducted in October 2016,56% of the respondents have alreadylocalized production in Russia andintend to expand it. Another 20%plan to launch its first production inthe next two years. Most Germancompanies see the potential in theRussian market: they are not goingto reduce the business activity in thecountry, but on the contrary — theyplan to expand the staff.

Our business relations in Russia areregulated by the Federal Law No.488 of December 31, 2014 «On in-dustrial policy in the Russian Fed-

eration». On its basis, a number ofresolutions of the Government ofthe Russian Federation were devel-oped.

On the one hand, the RussianFederation intends to attract foreigninvestors to create production inRussia. For this purpose, there aresubsidies and other state guarantees.A very popular method of supportis a special investment contract(SPIC) which requires the investorto establish either production ormodernization of industrial produc-tion in Russia, as well as investing atleast 750 million rubles.

In June, 2016 the first such con-tract was signed by the Germancompany CLAAS KGaA, specializ-ing in the manufacture of machin-ery and equipment for agriculture.Although the sales of company after2014 decreased by 40 %, it built anew factory in Krasnodar, worth€120 million. For CLAAS this is thelargest investment outside Germany.

There are also regional programs,including special investment con-tracts at the regional level — regionalinvestment projects.

On the other hand, the RussianFederation has imposed restrictionson foreign producers in the form ofpriority products and services ofRussian origin for government or-ders. In certain cases, foreign goodsare not considered at all, or Russiangoods and products from the coun-tries of Eurasian Economic Unionare given preferences for prices.

The current situation

Working conditions

49

55,6% of the respondents

have already localizedproduction in Russia

22,0% plan to launchproduction in the next two years

24,4% do not plan to launch production in Russia

German-Russian Chamber of Commerce Surveyamong German companies on localization, October 28, 2016

On the one hand, the RussianFederation intends to attract foreign investors to create production in Russia. On the other hand, it has imposed restrictions on foreignproducers…

“

Participation in large investmentprojects in the field of mechanic en-gineering is permitted only with theprior consent of the state commis-sion for import substitution.

There is a ban on provision somegovernment subsidies to foreigncompanies.

Regulation of the Government ofthe Russian Federation No. 719 dat-ed July 17, 2015 «On the criteria ofassigning goods to industrial pro-duction having no Russian ana-logues, produced in the RussianFederation», special criteria wereestablished for Russian products«Made in Russia». In certain indus-tries, there are rules of the formerCIS countries («Rules for determin-ing the country of origin ofgoods»).

We could say that there are re-quirements to manufactures or re-quirements for production. Themain requirement for producers isthat a foreign company in Russia isnecessary to have the right to man-ufacture, modernize and develop acorresponding product for a periodof not less than 5 years, also to havethe right to a certain license. With

regard to the requirement for pro-duction that is established the max-imum share of a foreign commodityand the need to imply certain pro-duction processes and technologicalprocesses in Russia.

These new provisions often re-quire from foreign producers to cre-ate production in Russia in order tocontinue to work in the local marketand participate in business, i.e. local-ize production in Russia.

Currently, most German produc-ers have already adopted such a de-cision. In Russia, a number of facto-ries have opened or the productionhas expanded, for example: Wilo,Henkel, ZMS-Technology, Petkus,Horsch, ROPA, Amazone, Claas,Daimler, Nestle, etc.

The Russian Federation providescertain advantages regarding thetime of fulfillment of the «made inRussia» criteria, that is, the investoris granted a more flexible regime offulfilling the terms and correspon-ding participation in state orders.On the basis of the SPIC, a foreign in-vestor and its subsidiary may begranted tax benefits (reduction ofincome and property tax to zero)and benefits when renting an indus-trial site, and guarantees are provid-ed for changing legislation in the fu-

ture. The maximum term of such acontract is 10 years.

At present, four investment con-tracts have already been concludedwith German investors (Claas, DMGMori, Daimler, Wilo). However, itseems to me that the number ofthem is still small. A very complicat-ed administrative procedure is re-quired for the conclusion of theSPIC. It takes a long time to preparea business plan, to agree it with allbodies and to negotiate with theRussian Federation. Accordingly, itis for small and medium-sized for-eign investors such a SPIC is not themost profitable way for receivingthe government support at the levelof the Russian Federation.

The main recommendation for in-vesting in Russia and the countriesof the Eurasian Economic Union issufficient preparation and compli-ance with all local requirements ofthe legislation.

It would seem that this is self-evi-dent, but in practice, foreign investorsare often not well prepared and arenot familiar with the laws in force. Asa result, for a number of reasons, bu-reaucratic, administrative, foreign in-vestors are committed to violations,creating serious legal and tax risks,which should always be avoided.

It should be added that the leg-islative legal framework conditionsin Russia and in other countries ofEurasian Economic Union are verydeveloped today. Unfortunately,this is rarely recognized and pub-lished in foreign media but this is ev-idence from the World Bank’s rating.So Russia takes the 35th place interms of business. Kazakhstan takes36th place in creating conditions forthe protection of minority investorsand Belarus is ranked 38th by termsof granting loans. Russian corporatelaw is developed and even more


Who is the Russian manufacturer?

Legal literacy

modern than the German CivilCode (BGB). (This topic is worthy ofwriting a whole book, in whichthere may be more than 500 pages).

What questions are cared aboutforeign suppliers? These are issues oftax registration, creation of perma-nent representation and the need toobtain a work permit.

It is in the machinery industrythat manufacturers not only supplytheir products to Russia, but alsocarry out mounting when installingmachines or equipment at factoriesof Russian, Belarusian or Kazakhcustomers. Often they send theirspecialists to Russia, who carry outmounting or provide specific servic-es to Russian customers.

If such activities of German em-ployees continue more than 30 cal-endar days, there is actually a needto register with the tax authorities atthe place of business in accordancewith article 4, paragraph 83 of theTax Code. But in most cases this re-quirement is not fulfilled.

Additionally to the question oftax registration it is necessary to ad-dress the issue of establishing a per-manent representation and the ap-pearance of corresponding tax liabil-ities. In this sense, it is important toremember the Tax Code of the Russ-ian Federation as well as the agree-ment between Russia and Germanyfor avoidance of double taxation.This agreement provides for an ex-ception in clause 3 of Article 5: theconstruction site or installation proj-ect is a permanent establishment on-ly in cases if the duration of their ac-tivities is more than 12 months. But:such an exception doesn’t apply tothe installation supervision.

Closely linked to tax issues arethe issues of obtaining a work per-mit for employees who are sent inRussia. In this case an employmentcontract is concluded. But in accor-dance with article 16 of the LaborCode of the Russian Federation, la-

bor relations between the employeeand the employer also arise on thebasis of the actual admission of theemployee to work with the knowl-edge or on behalf of the employer orhis authorized representative in casethe employment contract has notbeen duly formalized. In accordancewith article 67 of the Labor Code ofthe Russian Federation, an employ-ment contract that is not executedin writing is considered concludedif the employee has started workingwith the knowledge or on behalf ofthe employer or his representativeauthorized to do so.

At the actual admission of theemployee to work, the employer isobliged to formalize an employmentcontract with him in writing not lat-er than three working days from thedate of actual admission. According-ly, if a foreign employee works forthree days on the same constructionsite, it can be assumed that labor re-lations arise.

The question arises with whomsuch labor relations are concluded.There is a risk not only in relation toa German or foreign investor, but al-so with respect to the Russian con-tracting party.

On the basis of migration legisla-tion, there are certain exceptions,but it is necessary to first considerwhether such exceptions are actual-ly applicable.

For example, in accordance withsub-paragraphs 4 p. 4 of Article 13ofthe Federal Law No.115 from July 25,2002 «On the Legal Status of Aliensin the Russian Federation», a foreigncitizen has the right to work withouta work permit if he is an employee ofa foreign legal entity (producer orsupplier), performing installation(supervision) work, guarantee andservice maintenance as well as post-warranty repair of the deliveredtechnical equipment to the RussianFederation.

In conclusion it is necessary tomention the new Customs Code ofthe Eurasian Economic Union,which entered into force in January1, 2018, which includes introductionof simplified the customs legislation,transition to electronic data process-ing that means the speeding up therelevant processes. It also includesthe automated release of goods. Theexisting customs procedures in prin-ciple don’t changed, they continueto operate.

51

EURASIAN F INANCIAL & ECONOMIC HERALD | #2(4)-201852 ЕВРАЗИЙСКИЙ ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ ВЕСТНИК | #2(4)-201852

INVESTMENTS

DEEPAK BAGLACEO and MD, invest India

INDIA —A COUNTRY OF GREAT OPPORTUNITIES

This year India entered the top-100countries of the World in the WorldBanks’ ease of doing business ranking.The «incredible jump» — as the WorldBank CEO put it — from 130 last yearis the highest for any country.

“

investindia.gov.in

INTERVIEW WITH DEEPAK BAGLA, CEO AND MD, INVEST INDIA

5353

light of re-cent protec-tionist meas-ures being

put in place by a select few coun-tries, how can India continue to bean attractive destination for FDI?

— While it is true that we hearcertain protectionist voices, it doesn’taffect India’s attractiveness as an in-vestment destination. India hasemerged as a key investment destina-tion for both market seeking as wellas export-base seeking investments.

India’s GDP is set to touch $5 tnby 2025, and with both the manufac-turing and services sector expectedto grow by more than 10% annuallyin nominal terms.

India’s consumer market will be$4 tn by 2025. Today, India is one ofthe world’s most open economies,with a continuously improving busi-ness ecosystem, which is highlightedby the Ease of doing business rank-ings, where India jumped 30 placeslast year to break into the top 100.

This massive leap means that theconfidence of investors in the credi-bility of the system can now be tak-en for granted. Such ground-levelchanges in business-climate are like-ly to have a multiplier effect on theinvestment and the economy. An-

other great example of the progresswas given by FT’s FDI intelligence,which ranks India #1 in the world asreceipt n of greenfield FDI. This il-lustrates the long-term confidenceof investors and highlights their be-lief to profitability execute projectsin India from scratch.

— What are some of the process-es in the policy framework thatshould be made simpler for new in-vestors?

— From April 2014 till December2017, India received $209 Bn of in-ward FDI, the highest in its history.In fact, India is today one of themost open economies in the worldin terms of sectors that are open forforeign capital. More than 90% ofthis FDI came in with no approvals.Reforms have covered a wide rangeof topics from the country-levelground-breaking reforms such as thenew GST law or the new bankrupt-cy and insolvency code to repeal oramendment of over 14,000 policyand procedural interventions acrossthe central and state governments.This has dismantled the inherentcomplexity of rules and procedures,created over time.

This year India entered the top-100 countries of the World in the

World Banks’ ease of doing businessranking. The «incredible jump» — asthe World Bank CEO put it — from130 last year is the highest for anycountry. The improvement is evenstark along some of the key parame-ters. For instance, India jumpedfrom 99th position in 2014 to 29thposition now on getting electricity.

Going forward, India needs tocontinue to minimize the variationin the ease of doing business be-tween the states to ensure a uniformexperience throughout India. DIPP’sBusiness Reform Action Plan with405 specific recommendations across12 parameters is aimed to achievethis.

— What role has Invest Indiaplayed with facilitation of invest-ment into the country?

— At Invest India, we work withinvestors across their investmentlifecycle and translate these invest-ments into well-paid jobs for the na-tion’s emerging workforce. So far, In-vest India’s efforts have created morethan 100,000 jobs on the ground andwe are facilitating more than 85 bil-lion dollars of investments that arelikely to create more than 1.8 millionnew jobs. In a relatively brief period,Invest India has been impactful

In

across many areas. It has been effec-tive in increasing the competitive-ness of doing business in India, sup-porting start-ups and facilitating pi-oneering investments in major sec-tors. The journey from its infancy in2014 to a global winner is best reflec-tive of the story of new India — atransformation, unprecedented inspeed and scale. And all this wasachieved at a fraction of the budgetof global peers.

India works with all the state gov-ernments across India to make thishappen. To raise the bar of invest-ment promotion and facilitation byState Governments, Invest India re-cently conducted an in-depth eval-uation of capabilities of state IPAsacross India and conducted a na-tion-wide workshop to help themfill the gaps and facilitate knowledgesharing. Winning FDI is a collabora-tive effort with multiple actorsworking in tandem. Recognizing the

need for increased real-time friction-less coordination, we are linking theIndian missions, central ministries,Invest India and state governmentson a first-of-its kind technologicalplatform. This will ensure that theinvestors have a seamless experiencefrom the boardrooms in global capi-tals to the districts and blocks of thestates in India.

Russia Plus was conceptualizedby Prime Minister Narendra Modiduring the India Russia BilateralSummit at SPIEF 2018, St Peters-burg, Russia in June 2017. TheHon’ble Prime Minister of India, MrNarendra Modi announced in thepresence of President of Russia MrVladimir Putin during SPIEF 2017the setting up of a dedicated RussiaDesk at Invest India.

This desk, christened Russia Plus,was formally launched in Septem-ber 2017 by Mrs Sushma SwarajMinister of External Affairs of India

in the presence of Mr Denis Mantur-ov, Minister of Industry and Tradeof the Russian Federation.

Russia Plus is a milestone for theIndia-Russia relationship that hasstood the test of time, and willstrengthen the partnership that thetwo nations enjoy.

Russia Plus acts as a one-stop so-lution for investors by providinghandholding support that includesbusiness advisory, policy guidance,location assessment, assistance withregulatory approvals, issue redressaland expansion support.

We work closely with Russiancompanies to ensure that their in-vestments success in India. Our teamof sector and state experts workclosely with investors through theentire investment cycle — from con-cept to implementation. With RussiaPlus, Investors can benefit from In-vest India’s accomplished under-standing of the Indian climate.

55

FOREIGN DIRECT INVESTMENTS IN THE STATES OF INDIA

business in countries

RAJASTHAN

MAHARASHTRA

MADHYA PRADESH

ANDHRA PRADESH

BELOW IS THE INFORMATIONABOUT INVESTMENT OPPORTU-NITIES IN FOUR STATES OF INDIA:A GUIDELINE FOR INVESTORS TO INDIAN ECONOMY

ajasthan, or Abode of Kings,is the largest Indian state by

area, covering 10.4 per cent of thetotal national land coverage. Thestate covers a variety of topography,ranging from vast deserts to foresthills, and has a total population of68.9 million. The state is adminis-tered through 33 districts andrecorded gross state domestic prod-uct of US$120 billion during finan-cial year 2016–17.

Rajasthan shares its borders withfive major Indian states, offeringgreat potential in terms of marketaccess. It is one of India’s leadingmineral producing states and 70%of its population is primarily de-pendent on agriculture. To tap intothe state’s enormous potential foreconomic growth, the RajasthanGovernment has implemented sev-eral measures and reforms to makeit an attractive investment destina-tion.

The cumulative foreign direct in-vestment (FDI) into Rajasthan stoodat US$1.5 billion in the period be-tween 2000 to 2017. The construc-tion of the Delhi — Mumbai Indus-trial Corridor is likely to drive theinflux of FDI into the state, as a largepart of it lies in Rajasthan.

Benefits of investing in the stateinclude — location: 24.5% of Ra-jasthan lies in the National CapitalRegion (NCR); excellent connectiv-ity to Delhi, Mumbai, Ahmedabad,Vadodara, Bhopal and Amritsar;abundance of industrial power, rel-evant infrastructure, land availabili-ty, skilled manpower.

The major sectors for FDI in Ra-jasthan include — Infrastructure; IT& ITeS; Auto & Engineering; Renew-able Energy; Tourism; Healthcare;Agro & Food processing; Minerals &Ceramics; Textiles; Defence manu-facturing; Electronic hardware; andMSMEs.

The state has made several pro-gressive efforts towards attracting in-vestors and ensuring that the stateranks high in ease of doing business:

— the Government of Rajasthanhas introduced a Single WindowClearance System;

— the Rajasthan State IndustrialDevelopment and Investment Cor-poration (RIICO) has played an inte-gral role in reforms relating to landavailability and setting up of indus-trial areas;

— labour laws have been re-formed and a Labour DepartmentManagement System (LDMS) hasbeen established. This allows filingof applications, registrations, re-newals and online payments;

— an e-governance platformcalled e-Mitra has been implement-ed by Department of IT and Com-munications to provide services re-lated to different government workonline;

— speedy issuance of environ-mental clearances for setting up fac-tories. Land records have been digi-tized, allowing investors to extract acopy of the records online.

ЕВРАЗИЙСКИЙ ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ ВЕСТНИК | #2(4)-201856

Japanese Industrial Zone, Neemrana, is per-haps Rajasthan’s greatest success story.Around 1,100 acres of land near Rajasthan’sancient historical town is set aside exclusivelyfor Japanese corporations. This was a result ofan MOU signed between Rajasthan State In-dustrial Development and Investment Corpo-ration (RIICO) and Japan External Trade Or-ganization (JETRO). The total investment inthe zone stood at US$656 million in 2015. Global titans such as Toyota Motor Corp.,Daikin Industries Ltd and Hitachi Ltd haveclustered here. Ambuja Cements Limited,one of the biggest investors in the state, is thesecond largest cement manufacturing compa-ny in the world. Kajaria Ceramics, the largestmanufacturer of ceramic tiles in India withmarkets in more than 20 countries, has pro-duction operations in India.

Success Stories

Rajasthan

R

57

aharashtra is India’s sec-ond largest state located

off its western coast, and is the coun-try’s economic and industrial pow-erhouse. The state, divided in 36 dis-tricts, has a population of 114.2 mil-lion and gross state domestic prod-uct of US$279.3 billion in the finan-cial year 2016–17.

Consistently, one of the top fivecontributors to the country’s FDIpool, Maharashtra is poised to makean industrial investment of US$75.2billion and create 2 million jobs inthe state over the next five years.The state is investing heavily in de-veloping new infrastructure, trans-portation and developing smartcities to hike up its growth rate.Agriculture, the services sector, in-frastructure, IT and ITES, tourismand hospitality, and India’s biggestfilm industry — Bollywood, are ma-jor sectors in the state, whichstrengthens the state’s economy.

With 11 airports, 18 national high-ways and 6,000 km of rail network,the state is well connected to all ma-jor markets.

Maharashtra received a cumula-tive FDI inflow of US$112 billion

from April 2000 to September 2017,along with Dadra & Nagar Haveliand Daman & Diu. Investor interesthas been augmented by the state’sstrong agricultural and industrialbase, rich minerals and hydrocar-bons deposit, proximity to financialmarkets, skilled labour availabilityand advanced infrastructural andconnectivity setup. The US$100 bil-lion Delhi-Mumbai Industrial Corri-dor billed as one of India’s mega in-frastructure projects will developnew industrial cities en-route, asSmart Cities, and converge the latesttechnologies across infrastructuresectors. The key growth sectors inthe State include auto and autocomponents; infrastructure supportinstitutions; gems and jewellery;biotechnology. Bioinformatics; flori-culture; and food processing.

Maharashtra is ranked highest inEase of Doing Business (EDB) met-rics among the Indian states study

by the Lee Kuan Yew School of Pub-lic Policy.

The state leads in obtaining ap-provals for infrastructure-relatedutilities, procedures for starting abusiness has been reduced. Maha-rashtra passed a new Electronics Pol-icy, which promises one windowclearance, offers subsidies andmakes the state competitive.

To aid investment, MaharashtraIndustry, Trade and Investment Fa-cilitation Cell (MAITRI), an onlineone-stop shop for investors has beenset up; The State has also passed a re-vised Maritime Development Policyto focus on the PPP model and boostport infrastructure.

Maharashtra Rights to PublicServices Act ensures 110 essentialservices are delivered in a time-bound manner for a nominal fee.The State Government has also of-fered Special Economic Zone (SEZ)policy to boost investments.

Taiwanese electronics giant Foxconn hasmade Maharashtra its destination in India;General Motors consolidated its operations atits existing unit at Talegaon, Maharashtra,with an investment of US$1 billion.The Maharashtra government is planning toset up a 500 MW solar park in Dhule dis-trict.The entire investment in the park willcome from private parties and the state willcall for bids sometime in the next quarter.Electronic firms, shortlisted for incentives bythe Government, for manufacturing theirproducts in India have invested US$160 mil-lion in Maharashtra under the Modified Spe-cial Incentive Package Scheme.Microsoft is helping to develop Maharashtra’sfirst smart village at Harisal in Amravati; A US$769 million World Bank conservationand agriculture reforms project has beenlaunched in Vidarbha and Marathwada.

Success Stories

Maharashtra

М

Madhya Pradesh


adhya Pradesh (MP) isconsidered the heart of

incredible India. The state is rich inmineral resources and has the largestdiamond and copper reserves in In-dia. More than 33 percent of its areais under forest cover and thetourism industry here has seen con-siderable growth. The total popula-tion of Madhya Pradesh Pradesh isabout 73 mn.

MP is known for its robust railnetwork with 425 trains crossingdaily, dense road network of160,000 km, 5 airports and 5 InlandContainer Depots (ICD), MadhyaPradesh offers excellent support in-frastructure for industrial growth.

Madhya Pradesh is one of India’stop investment destinations. Ac-cording to the Department of In-dustry Policy and Promotion(DIPP) and World Bank report,Madhya Pradesh ranks among top 5states in Ease of Doing Business for2015–16. The state ranks numberone, in terms of allotment of landand obtaining construction permits.Madhya Pradesh has implementedan effective Single Window System

for time-bound clearance of ap-provals.

Madhya Pradesh is centrally lo-cated, providing easy connectivityto all the major commercial hubs ofIndia, including New Delhi, Mum-bai, Ahmedabad, Hyderabad andKolkata.

The state has 229 Notified Indus-trial Areas, 19 Growth Centers, fournotified Special Economic Zones(SEZs) and 12 product specific in-dustrial parks.

Priority Sectors For Investment in-clude Agri-business & Food Pro-cessing. Madhya Pradesh has been re-ceiving ‘Krishi Karman’ award forspectacular performance in agricul-tural production continuously forthe past 4 years. With the presence of6 government owned modern foodparks and 2 private food parks, Mad-hya Pradesh provides huge opportu-nity for food processing companies.

The state has the strong presencein OEM’s and auto componentscompanies. Madhya Pradesh is alsothe largest producer of radial tyresin India. Pithampur near Indore isthe major auto cluster in the state.Pithampur also has National Auto-motive Testing Tracks (NATRAX),

which is the world’s 2nd largest autotesting track.

India is the largest importer ofarms in the world, accounting forabout 14% of the world’s arms import.

The State Government has un-veiled 2 progressive policies specifi-cally for IT sector — IT Policy andBPO Policy. There is availability ofskilled technical manpower — morethan 100,000 engineering graduatespass out of the state’s engineering col-leges every year. Plug and play infra-structure is available for IT/ITeS com-panies in 4 major cities of MP — In-dore, Bhopal, Jabalpur and Gwalior.

Madhya Pradesh has emerged asthe major pharmaceutical manufac-turing destination in the country.More than 280 pharmaceutical unitsare operating in industrial areas ofDewas, Indore, Pithampur, Man-dideep and Malanpur. Around 200Ayurvedic and 50 Homeopathicmedicine units present in the state.

Madhya Pradesh is the 5th largestproducer of cotton in the country,with a strong presence across all seg-ments of textile industry. The stateis the home of world-renownedChanderi and Maheshwari sareesand Bagh handloom products.

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59

Andhra Pradesh

ndhra Pradesh is known asIndia’s Sunrise State and

the gateway to the east. It is locatedon the southeastern coast of thecountry. In 2014, the northwest por-tion of the state was bifurcated toform Telangana. Andhra Pradesh’slongtime capital, Hyderabad, wastransferred to Telangana as part ofthe division, but remains the de jurecapital of the state for now. Current-ly, Andhra Pradesh is budining itsnew capital city Amaravati.

The economy of the state is thriv-ing, consistently registering doubledigit growth. Although primarily anagrarian economy, the industrial andIT sectors have really come to thefore in recent years. The state is ad-ministered through 13 districts andhas a population base of 49.4 mil-lion. The state recorded gross statedomestic product of US$105 billionduring financial year 2016–17.

The state received more thanUS$14.3 billion in FDI from April2000 to September 2017. It is creat-ing a conducive business ecosystemby introducing favourable policiesand regulatory framework, such asflexible labour laws, policy on Inter-net of Things and Single Desk Policy.The State Government has also pre-pared a land bank of around 1 mil-lion acres while developing infra-structural and connectivity projectsas well as a skilled labour force base.

Three industrial corridors are com-ing up in the state creating a net-work of industrial nodes, transportlinkages and support infrastructure:Visakhapatnam — Chennai Industri-al Corridor (VCIC), Chennai — Ben-galuru Industrial Corridor (CBIC)and Kurnool — Bengaluru IndustrialCorridor (KBIC).

Key growth sectors in the state in-clude agro and food processing;aerospace and defence; automobileand auto components; electronicsand IT; life sciences; mineral-basedindustries; petroleum, Chemicalsand Petrochemicals; textiles and ap-parel; retail; tourism; energy andMSMEs.

In 2016, Andhra Pradesh rankedfirst in Ease of Doing Business in In-dia, according to a list prepared byWorld Bank and the Department ofIndustrial Policy and Promotion(DIPP).

Mastercard has signed an MoU with AndhraPradesh to digitally transform the State’s de-livery of services to people, especially farm-ers, and drive financial inclusion.PepsiCo opened a new US$77 million manu-facturing facility at Sri City industrial park inChittoor district of Andhra Pradesh. It is tout-ed to become PepsiCo's largest plant in Indiafollowing a total investment of US$185 mil-lion.In 2016, Mondelez Foods has set up the firstphase of its largest manufacturing facility inAsia Pacific in Sri City, Andhra Pradesh fol-lowing an investment of US$190 million.Kia is investing US$1.1 billion in AndhraPradesh in a car manufacturing unit inAndhra Pradesh.State-owned explorer Oil and Natural GasCorp Ltd (ONGC) will invest US$12 billion inthe Krishna Godavari basin for producing hy-drocarbons and has signed an agreement withthe Andhra Pradesh government.

Success StoriesА


Expert opinion

ISTVAN LENGYELDeputy Chairman of the Coordinating Council,Secretary General of BACEE

REAL-TIME SETTLEMENTSRAISE BANKS COMPETITIVENESS

Banks must be ready for new challenges with regards to real-timepayments. Otherwise they will loseconsiderable payment turnover.

“

www.bacee.com

ow it’s time of a fight-back — banks in Eu-rope search for theways to defend their

franchisee in the payment business.Payment monopoly of banks is un-likely, of course, but with a newstrategy banks have a good chanceto set back further client attrition tofin-tech. Traditional financial insti-tutes have finally realized that it isthe era of digytal commerce andpayment technologies with elec-tronic devices, where they will beactive participants or outcasts.

One of the main competitiveweapons of banks against fin-tech ri-vals is the development of instantpayments. It isn’t a totally new prod-uct — for many years there has beenRTGS (Real-time gross settlement)for big payments with central banksas the most usual operators. Themain advantage of RTGS is the speedand completeness of payments exe-cuted in the «central bank’s funds».These systems functioning in morethan 100 countries originally weredesigned for a small number of bigtransactions and were considered apremium service at high price. Be-sides high price and «premium» sta-tus RTGS have yet another prob-lem — they are available only duringworking hours.

After a long sleep banks — the«Sleeping Beauties» — seem to havewoken up finally, and during the lastfew years there was an outbreak in

N

61

Hungary hasworked out itsown concept differ-ent to the European so-lutions by a number ofitems and to the current RTGSvalid in the country. The CentralBank of Hungary is going to intro-duce a real-time settlements systemon a mandatory basis for all banks ofthe country.

With the national systems of real-time settlements being an importantstep in the competition with fin-tech, their limited character does notallow the users to settle cross-borderpayments which are becoming moreand more important together withthe development of e-commerce. Inorder to compete with fin-tech com-panies or even with quite traditionalpayment cards it is necessary to unitebanks into regional if not global, pay-ment systems which provide for re-al-time settlements within a region.

As arespond to

fin-tech challenge theEuro Retail Payments Board underthe auspicies of the European CentralBanks in the late 2014 announced theneed for an all-European real-timesettlements system. In order to devel-op settlements on the territory of theSingle Euro Payments Area (SEPA)

the development and transforma-tion of bank payment services in ac-cordance with the demands of thedigital era. The year 2017 was a turn-ing point and it certainly can be con-sidered the Year of instant pay-ments. The number of instant pay-ments systems in the world hasgrown up by 11 (in 2016 — by 5), andnow these systems work in 30 coun-tries, and 18 countries are planningto introduce them.

The main reasons for such a rapiddevelopment are:

— pressure from clients, corpo-rate and consumer demand forwider functions and higher speed ofpayments on a 24\7\365 basis;

— clients expectations of onlinepayments at a lower price;

— regulatory pressure and con-trol;

— spread of mobile applicationswhich require online payments.

Today in Central Europe onlyPoland has a valid national system ofreal-time settlements (KIR/ExpressElixir). The Czech Republic, Hun-gary, Lithuania and Slovenia are go-ing to launch their own systems in2018–2019. Estonia and Slovakiastick to «wait and see» position —these countries are in Eurozone, andfor them it might be more favorableto join right to all-European systemsof real-time settlements.

SUPPORT OF PAYMENT OPERATIONS IS ONE OF THE KEY BANKS FUNCTIONS AND A SOURCEOF THEIR INCOME. FIN-TECH REVOLUTION HAS PUT UNDER QUESTION THE LEADING ROLEOF BANKS IN PAYMENT SERVICES — AT LEAST IN RETAIL PAYMENTS — BANKS TAKE A BACKSEAT TO PAYPAL, SAMSUNG PAY, APPLE PAY, ALIPAY, YANDEX MONEY. THESE PROVIDERS APPEARED AS A RESPOND TO HIGHER EXPECTATIONS OF CONSUMERS FROM PAYMENTS —CLIENTS DEMAND AVAILIABBLE, REAL-TIME AND CHEAP PAYMENT SERVICES. A COUPLE OFYEARS IT HAS ALREDY SEEMED THAT BANKS WOULD LOSE THIS BATTLE, AND A CONCIDER-ABLE SHARE OF SETTLEMENTS WOULD PASS TO COMPETITIVE FIN-TECH COMPANIES.

Situation in Central Europe

Hungary: special features of the System of real-time settlements

Payment currency: Hungarian forint.

Scope: obligatory for ALL Hungarian banks.

Mandatory nature: ALL corporate and retail payments upto HUF 10 m. (about 33 000 Euro) must be settled throughthe real-time settlements system.

System operator: Clearing house of FOREX exchange (KELER), 100% subsidiary of the Central Bank.

Provision of liquidity: banks must place reserves in accor-dance with pre-funding. Reserve accounts are creditedduring working hours through the Hungarian RTGS (VIBER).

The system will be launched on July 1, 2019.

reference

All-European systems — SEPA Instant Credit Transfer

the European Payments Council (anon-commercial association of 75payment services providers) was es-tablished and was tasked to work outframework conditions for real-timesettlements on the all-European area.In November 2016 the Council pub-lished the main document which reg-ulates the real-time settlementsthrough SCT Inst — a new pan-Euro-pean system. According to the planthe conditions of SCT Inst will be ap-plicable not only in Eurozone but al-so in other EU member-states as wellas in 6 other countries (Iceland,Liechtenstein, Monaco, Norway,San-Marino, Swotzerland) — alltoghether in 34 countries.

SCT Inst was started in Novem-ber 2017, at first with 585 paymentproviders from 8 countries (Austria,Germany, Holland, Spain, Italy,Latvia, Lithuania, Estonia) — theyare yellow on the map. In the nearest

future other providers will join fromBelgium, Malta, Portugal and Finn-land, as well as from Germany andHolland. SCT Inst is not a settlementsystem but a set of conditions for re-al-time payments according to com-mon standards.

Openness. All recognized paymentsproviders can join (not onlybanks) — like in SEPA system.

Voluntariness. The participation isnot obligatory for providers (unlike,for example, the Hungarian nationalsystem).

Speed. Maximum settlement run-time is 10 seconds (from the pay-ment order to the crediting of a ben-eficiary’s account).

Maximum payment amount. At thebeginning — 15 000 Euro, but later itmay be increased.

SCT Inst in the fourth element ofSEPA supplement to the three onesexiting within the scheme of SEPA(SEPA Credit Transfer, SEPA DirectCredit Core, SEPA Direct Debit Busi-ness-to-Business).

Since the participation in SCT Inst is voluntary its success will


The main SCT Inst elements

SCT Inst was started in November 2017 in 8 countries (they are orange on the map)

1. Austria 2. Estonia3. Germany4. Italy5. Latvia6. Lithuania7. Holland8. Spain

1

2

3

4

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7

8

EPC poll — When do you think the critical mass osSEPA Instant Credit Transfer transactions will bereached across Europe

32% after 2020

13% in 2018

28% in 2019

27% in 2020

Today the challenge for RT1 is liq-uidity supply during non-workinghours. The system has a powerfulsupport in the form of mutual creditlimits for the participants and re-serves. However total defense froma possible lack of liquidity duringnon-working hours in extreme con-ditions can be secured by joiningthrough RT1 to the settlement sys-tem of Eurozone central banks(TARGET). In November, 2018 anew settlement system of Europeancentral banks will be launched —TIPS. It will be open 24/7/365 andwill ensure additional liquidity tothe participants of RT1 at any timein the of «central bank money».

The effect of the press of real-timebank payments can be consideredtruly revolutionary.

For banks the work on a 24\7\365basis means huge investments intothe information systems and soft-ware. The 10-secondpayments will un-precedentedly in-crease requirementsto compliance andAML, and will prob-ably lead to furtherautomated processesand the use of ma-chine intelligence.

For regulatorssuch 24/7/365 bank-ing system means theneed to control it inthe same mode andto ensure urgent sup-port at any time. Ofcourse clients benefitfrom such real-timesettlements first ofall. In fact it may lead

to the changes in the work of treas-ury of large companies. Probably inthe future they will offer to theirbanks or partners the placement ofavailable funds for several hoursduring the day... However it’s a long-term perspective.

In June, 2017 EPC conducted anonline poll to know the opinion ofits users regarding the expected ad-vantages of SCT Inst.

Even for ЕРС it was a surprise toknow that almost a half (48%) of re-spondents consider as the main ben-efit the possibility for businessmento check the receipt of payment totheir accounts immediately at themoment of selling goods or services.It also means that according to themost respondents real-time pay-ments will compete with paymentcards! About 1/3 of respondentspointed out possible advantages ofSCT Inst in the person-to-personpayments, and 14% — in transactionsbetween corporations.

In any case banks must be readyfor new challenges with regards toreal-time payments. Otherwise theywill lose considerable paymentturnover.

depend on the «critical mass» oftransactions. In 2017 most expertssaid it would happen before 2020,while 32% of experts believe that thesystem will not reach the goal inthree years.

As it was mentioned earlier SCT Instis not a settlement system, but a setof standards for real-time payments.

In order to achieve their aimsprogrammers of SCT Inst have tocreate a relevant settlement clearingbase. EBA (Euro Banking Associa-tion) decided to complete the task.It’s a non-commercial organizationwith three different pan-Europeaneuro settlement systems functioningunder its auspices (EURO1, STEP1and STEP2). On November 21, 2017simultaneously with SCT Inst, ЕВАactivated RT1 — the first all-Euro-pean euro real-time settlement sys-tem. RT1 works 24/7/365. Accordingto SCT Inst rules payments are set-tled within 10 seconds. Starting fromJanuary 1, 2018 according to PSD2any payment services providers canjoin the system who comply withPSD2 (not only banks). At its launch17 banks joined the system from 8countries which give access to RT1for 500 payment services providers.

63

How will a real-time payments system changepreferences of users with regard to different forms of payments?

Online survey of EPC: advantages of SCT Inst. June 2017

2% Other

48% For consumer-to-businesspayments, when small businesses require to be paidon the spot (ex: moving com-pany, antique dealer...)

35% For person-to-personpayments

14% For transactionsbetween corporates

1% For goverment-related payments(ex: taxes...)

In November, 2018 a new settle-ment system of European centralbanks will be launched — TIPS.It will be open 24/7/365 andwill ensure additional liquidityto the participants of RT1 at any time in the of «centralbank money»

“

Pan-European private systemof real-time payments EBA CLEARING RT1 and the settlement systemof the European central

1950–2010 growthrate of global econo-my was 1.6 fold high-er than the growth of

global GDP. In the recent years worldtrade grew by 5% every year, whileGDP grew only by 2.9%. The share ofFDI in the world GDP increased 5times, and recently — by 25% more.

The growth of trade was fol-lowed by the changes in exportstructure. Since 1950s the share of in-

dustrial countries in the world ex-port decreased steadily, and startingfrom 1980s it nearly tumbled. In2010 the share of developing coun-tries in the world export of industri-al products amounted to 1/3 — twiceas much as 25 years ago.

Geographical and structuralchanges of trade affect the migrationof labor. The sectoral shift from agri-culture to industry and services, tothe production of goods with higher

added value provide for new re-quirements to professional skills.The task to balance the require-ments with the skills exists at all lev-els both on certain territories and incertain companies.

Another feature of globalizationis the labor flow from the south tothe north, as well as from the southto the south and from the north tothe north. The number of migrantssteadily grows. In 2017 it reached


THE WINDOW OF ECONOMIC OPPORTUNITIES

Contemporary view

Andrey Bespalov,Chairman of Coordination Council of Eurasian Center for Human Resources

THE MAIN FEATURE OF THE WORLD ECONOMIC DEVELOPMENT OF THE RECENT 50 YEARSWAS THE GROWING INTEGRATION OF MARKETS LOCATED IN DIFFERENT REGIONS. WE CANSEE IT IN THE GROWTH OF WORLD TRADE, FOREIGN DIRECT INVESTMENTS AND MIGRATION.

In

tries there not so many educatedpeople, about 10–15%.

Another question is how mi-grants’ potential is used at the Russ-ian labor market. «Most peoplecant’s find job relevant to their qual-ification and education. They losepotential, because Russia can’t useit», — considers Julia Florinskaya,head scientist researcher at the Insti-tute of social analysis and prognosesat RANEPA.

Basically the share of migrantswith higher education is 20%, how-ever they usually work in placeswhere only secondary-level of edu-cation is required or their functionsinclude just servicing. Weak possi-bilities to use human potential resultin situations, when a qualified obste-trician-gynecologist works as a wait-er. It happens very often. There is alack in medical staff in Russia, butoperating medical entrants work insupermarkets.

Migrants remain of the lower po-sitions at the labor market. The high-er positions are for local worker, themedium one — for domestic mi-grants, and the lower positions re-main for migrants from other coun-tries. During their work many mi-grants become more skilled, bit it isnot taken into account either. Weshould realize that migrants carryhuge potential in case of economicgrowth. While employing migrantsonly for low-technology productionunits and out-of-date processes, wehinder modernization and innova-tive development.

We expect that qualified labor in-flow into Russia will keep at the lev-el of 280 000 people (illegal inflow ismuch bigger). The share of skilledmigrants of financial and bankingsector amounts to 2000–4000 peo-ple per year. And their employmentis hindered by weak system of qual-ification recognition.

Let’s look and European experi-ence? For easier recognition of edu-

258 million, with half of them beingworking-age population.

The growth of global migrationrequires special measures to recog-nize their professional skills andqualifications. Any obstacle to laborflow holds back economic growthand innovations especially in thecountries with anticipated deficit oflabor resources.

As for migration in Russia, ac-cording to unofficial assessments,the accumulated number of eco-nomically active labor migrants inRussia amounts to 6-13 million peo-ple, or 7 — 15% of general employ-ment in Russia. Many believe thatimmigration inflow into Russia in-cludes only uneducated and badlyqualified people. But expert re-searches prove it is not true. Latelythe education level of migrants hasbecome higher than of those wholeave the country.

Constructors, supermarket assis-tants, restaurant and café staff, deliv-ery men and street cleaners — manyof them came to Russia after gradu-ation from universities and colleges.The information about educationlevel of the entrants in Russia is dis-torted to a large extend.

«Statistic shows that educationlevel of entrants in Russia graduallygrows», — sais Nikita Mkrtchyan,head scientist researcher at the Insti-tute of social analysis and prognosesat RANEPA.

Polls among employers and mi-grants themselves revealed that la-bor migrants in general have lowereducation level than most Russians,however in some professions en-trants are more skilled.

2015–2016 saw intense labor flowsfrom Ukraine, Armenia and Kyr-gyzstan. And it turned out that theywere much better educated thanRussians. Migrants from Moldova,Ukraine, Armenia and some othercountries also come after higher ed-ucation while in Central Asian coun-

cation and easier labor migration,the Council of Europe has created asystem of centers NARIC in each EUstate.

In 2015 4.7 million migrated tothe EU countries, 2.4 million ofthem were not from the EU, and 2.3million people — from differentcountries of the European Union(domestic migration). As of January2016 there were 16 million entrantsin the EU.

There are some common rules inthe EU, but each country tries to reg-ulate the flow of professionals itself.In general the European experts ad-mit that there is basically no auto-mated system for recognition of pro-fessional education.

The process of mutual recogni-tion in our area is likely to meet a lotof challenges, such as economic in-terests of those who work in educa-tion system and try to monopolizetheir assessment and certificationstandards.

What outcome do we see? Shiftto complex solutions in the interestof the whole economic union. Suchintegration solutions should bebased on joint documents, recom-mendations and contingence of as-sessment procedures.

A solution can be found in a mul-ti-agent net-centered structure, flex-ible for regional conditions but atthe same time being a common in-formation assessment field. In suchsystem clients will be close to exec-utive centers, and also can get uni-fied services of the assessment sys-tem for qualifications in all countriesof presence. Naturally the replica-tion of such mechanisms is easy, andits launch in other countries doesn’tcost much, which makes the wholeevent profitable.

The establishment of FBA EACplatform of an international Qualifica-tion Assessment Center at the premis-es of the Russian-Armenian Universityin Erevan is a good example.

65


nfortunately, todaythe quality of bank-ing services leavesmuch to be desired.

Often the clients are not satisfiedwith the illegal interest changes onthe loan, levying a commission inthe conduct of credit account, theprocedure for processing a mort-gage. Quite often there is a situation

where the client is not declared allthe terms of the loan when signingthe contract and the client makesunexpected discoveries for himselfat home, when carefully read thecontract already signed.

However not all disappointedcustomers go to the law because itinvolves significant material, moraland time costs. This situation has a

negative impact on the image ofgood faith banks that conduct anopen policy with respect to theirclients. All this emphasizes the at-tention of scientists and legislatorson the search for new effective waysand means of protecting the rights ofindividuals as participants of bank-ing relations. The world experienceindicates that the protection of the

FINANCIAL OMBUDSMAN IN THE IBC MEMBER-COUNTRIES

IN RECENT YEARS THERE HAS BEEN A STEADY TREND OF GROWTH IN THE NUMBER OF COM-MUNICATIONS FROM CITIZENS TO STATE BODIES ON ISSUES OF CONTRACTUAL RELATIONSWITH BANKS. IT IS OBVIOUS THAT THE LEGAL RELATIONSHIP BETWEEN BANKS AND THEIRCUSTOMERS IS CHARACTERIZED BY THE COMPLEX OF LEGAL BASIS CONNECTED WITH BANK-ING ACTIVITY AS WELL AS THE LOW LEVEL OF FINANCIAL LITERACY OF THE POPULATION.

Founder’s page.

IBC

AZERBAIJAN:

INSTITUTE DEFENDING THE INTERESTS OF CLIENTSwww.aba.az

IBC Meeting. Azerbaijan, Baku, October, 2017

U

interests of clients of credit organi-zations, promoting dispute settle-ment arising between banks or theircustomers, the organization of theirinteraction are among the most im-portant tasks of the banking system.

Under the prevailing circum-stances, the banking communityrepresented by the AzerbaijanBanks Association (ABA) has startedto examine the dispute settlementarrangements between banks andtheir clients — physical personsabroad. It was decided to establishthe Institute of Bank Ombudsman.Its goal is the establishment of confi-dent relations between banks andclients, by resolving disputes.

The decision to establish the In-stitute of Bank Ombudsman wastaken at the meeting of the GeneralAssembly of the Azerbaijan BanksAssociation (ABA) on February 3,

2017. At the same meeting, the Char-ter and the Provision on bank om-budsman were approved. On April14, at the meeting of the Presidiumof the ABA, Ikram Heydar oglu Ka-rimov was elected to the above post.

To the personality of the bankingombudsman, the requirements arevery high. In this regard, the activityof the bank ombudsman is capableto influence the effectiveness of thesystem of citizens’ appeal to stateand judicial bodies, freed from theneed to consider minor disputes,which constitute a significant part oftheir workload.

As a conceptual basis for the ac-tivities of the bank ombudsman, ourbanks have chosen a German model,according to which this institute isnot a state structure. To competenceof the new institute includes the res-olution of civil disputes arising in

connection with the conclusion,modification, execution or termina-tion of contracts concluded with fi-nancial organizations. The disputecould be referred to the bank om-budsman only on the initiate of theindividual — the client of the creditorganization. The main goal of theorganization is to provide an acces-sible, simple, fair extra-judicial pro-cedure for resolving civil disputesbetween credit organizations andtheir customers. The amount shallnot exceed 2000 ( two thousand) USdollars on the day of filing an appli-cation in mantas or another equiva-lent currency in accordance withthe official rate of the Central Bankof the Republic of Azerbaijan. Thisinstitute gives an opportunity of freeresolution of disputes and relieves ofthe need to resort to costly andlengthy standard judicial proce-dures. The procedure for the settle-ment of complaints applies to alltypes of services, provided by banks.

Accession to the institute of thebank ombudsman of the Republic ofAzerbaijan for banks is voluntary. Itis formalized by a special declara-tion on the transfer to the bank om-

67

Extended IBC Meeting. Kyrgyzstan, Bishkek, May, 2014

International Banking Council (IBC)

The International Coordinating Council of Banking Associa-tions of the countries of the Commonwealth of IndependentStates, Central and Eastern Europe (IBC) is a public organiza-tion open to banking associations of all countries interestedin cooperation.

Creation date — September 3, 2004.

The purpose of the association is to effectively coordinatethe efforts of the banking associations to maximize the useof the banks' capabilities in interstate economic coopera-tion.

Members of the IBC are banking associations of Belarus,Kazakhstan, Kyrgyzstan, Russia, Azerbaijan, Georgia, Serbia,Tajikistan, Uzbekistan, Ukraine, Moldova, Armenia, Montene-gro, as well as the Financial and Banking Council of the CIS,the Banking Association of Central and Eastern Europe, theFinancial and Banking Association of Euro Asian Cooperation.

Currently the IBC includes 17 organizations.

The Chairman of the IBC is Executive Vice-President of theRussian Union of Industrialists and Entrepreneurs, Chairmanof the Coordination Council of the Financial and Banking Association of Euro Asian Cooperation Alexander Murychev.

REFERENCE

IBC Meeting. Ukraine, Kiev, November, 2016

budsman of disputes involving indi-viduals — the bank’s clients. Thus,the consideration of disputes in ac-cordance with the Regulation of thebank ombudsman is possible onlywith respect to banks that have offi-cially joined this institute.

Funding of the new activity isprovided from a special fund,formed by the Azerbaijan Banks As-sociation due to earmarked contri-butions of members who signed theDeclaration.

We would like to note that bothparties, during the preparation ofthe declaration and application, givespecial consent to the processing ofany personal data related to themreceived during the consideration ofdisputes, including the publicationof acts and information on disputes.

An important element of this sys-tem is that the application is accept-ed on the condition that the clienthas previously submitted a com-plaint to the bank and received a re-ply that didn’t satisfy him or re-ceived no response after 30 workingdays.

Written complaints describingthe essence of the case and enclosingthe necessary documents are sent tothe secretariat of the bank ombuds-man. The complainant can do inthree ways:

— filling out an electronic appealin a special section of the website;

— by sending mail;

— having personally come to theoffice of the bank ombudsman.

The ombudsman, on the basis ofthe documents submitted, decidesthe question of the admissibility thecomplaint in accordance with therequirements of the Regulation. Fi-nancial organization must submit awritten response within one monthfrom the date of receipt of the com-plaint, which is sent to the client.

The decisions of the bank om-budsman are voluntary for imple-mentation only for both parties. Ap-plicants — natural persons in case ofdisagreement with the decision have

the right to apply to the state courtfor reconsideration of the dispute.

Obviously, only those banks thatare interested in providing qualityservices to their clients will be join-ing the institution of the bank om-budsman, aimed at strengtheningtheir long-term positions in the fi-nancial market through the imple-mentation of honest, open clientpolicy.

Without a doubt, in the near fu-ture the institution of the bank om-budsman will play no less importantrole in banking than other relevantinstitutions.


Extended IBC Meeting. Belarus, Minsk, October, 2014

Extended IBC Meeting. Serbia, Belgrade, May, 2017

Ikram Geygar ogly Karimov, bank ombudsman of Azerbaijan

2

November 30, 2018

Nominations 2018: BANKER OF THE YEAR

(for personal contribution

to the development of banking

business)

STANDARD OF STABILITY(bank leader on sustainable

development, stability, holder

of international and country ratings)

TRIUMPH OF TECHNOLOGY(bank leader in the implementation

of modern IT technologies)

Prize:Exclusive author's statuette

The official award ceremony will be held on November

30, 2018 with the participation of representatives

of business, political and cultural circles, national

governments and banks, heads of trade unions and

associations, representatives of leading mass media

of the countries of Eurasia

Award«Financial and Banking

Elite of Eurasia»

1

2

3

Applications for participation are taken

until November 1, 2018.

Registration Form and Terms of participation

in the competition: www.fbacs.com

Organizing committee:

tel.: +7 495 6630208, 6630213,

email: [email protected] [email protected]

Organization and preparation of documentation for stock tradingConsulting on business activities and management Legal support of transactionsTrust asset managementInvestment activities

Services for the effective work of small and medium-sized businesses and their integration into the exchange system

BUSINESS SOLUTIONSСOMPLEX

www.salus.ru [email protected]



Russian Union of Industrialists and EntrepreneursIWS

Internationaler Wirtschaftssenatworld economic council

THE FIFTHMOSCOW INTERNATIONAL

FINANCIAL AND ECONOMIC FORUM

Eurasian Unionand the EU:

search for new formatsof cooperationNovember 30, 2018

T H E O R G A N I Z I N G C O M M I T T E E

17 Kotelnicheskaya nab., Моscow, 109240, offices 400–408.+7 495 663-02-08/13/19

[email protected], [email protected], [email protected], [email protected]

THE FORMAT OF FORUM• Plenary sessions

• Breakout sessions

I секция Agribusiness: from intentions to cooperation

II секция At the speed of light — the latesttrends and changes in the environmentof financial technologies and regulation

III секция International transfer of high technolo-gies — new opportunities for Eurasianintegration

IV секция IBC Meeting «Risk assessment and itsmanagement in cross-border bankingtransactions»

BREAKOUT SESSIONS

Rajnish Kumar:

№ 2 (4) | 2018

O F F I C I A L P U B L I CAT I O N O F F B A E AC , I B C

«The possibility of financial unionwithin EAEU enhancesthe positive outlook of the region…»

Personality

4I. Lengyel Real-time settlements raise banks competitiveness

Financial forum-2018: «Financial and Banking systemof Russia: New challenges and trends»

B. PejakovićThe banking sector reform in Montenegro

А. BoldiGold Italy

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30

eurasian financial & economic

EU

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NA

NC

IAL

& E

CO

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MIC

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№ 2

(4)

|20

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IWS and Entrepreneurs FINANCIAL & BANKING ASSOCIATION OF …¡айт_Вестник_2... · 2018-05-14 · of Banks of Georgia Veroljub Dugalić, General Director of the Association