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(Task I.A.P.7)
The price of credit: Government's Contribution
V.L. Tambovtsev, L.A. Valitova
Introduction
Increased competitiveness of the Russian economy through a structural manoeuvre of increasing the share were share of its high-tech sector is impossible to effect without a massive influx of investment seeking to implement the technology innovations. One of the conditions for such influx consists, evidently, in significant improvement of the investment climate in the country. The status of the latter is due to a significant number of factors, one of which is the accessibility of financial resources. An indicator and at the same time real expression of such accessibility is in the first place the price of credits by national banks. It is widely known, that in the Russian Federation in spite of macroeconomic stabilisation achieved relatively long time ago, the price remains to be relatively high. Thus, according to the Bank of Russia, in April, 2005 it made 13.2 % annually on rouble credits with a maturity up to one year for industries and 22.1% for natural persons. Furthermore, forecasts of a inflation rate for 2005 based on the results of the first quarter, by some estimations, made 11,5 % annually. Commonly, as explanation of this phenomenon high risks of a non-refund of the issued credits have been quoted. However, such risks can be only a consequence of more profound reasons which remain uncovered by such explanation.
Meanwhile, lack of certainty with regard to such reasons does not allow putting forward measures that could possibly improve the given component of the country’s investment climate. Thus, in Russian Banking Sector Development Strategy though 2008 recently approved by joint ordinance of the Government of the Russian Federation and the Central Bank, all measures for its transformation, in the opinion of a number of experts, are actually reduced to mere integration of credit institutions. However, there is no established data testifying that more major banks allot credits under lower prices, though based on the common sense (effects from the economy of scale) such dependence should take place.
From our point of view, to take effective measures for normalisation of the situation in the field it is necessary, first of all, to try to identify the likely reasons for obviously overestimated credit prices retained in the contemporary macroeconomically sustainable conditions with steady proficiency of the budget and growing cash balances on the corporate accounts.
The working hypothesis underlying the current empirical research maintains that the reason behind overestimated credit prices is poor quality institutional environment both in the national economy as a whole and actually in the banking sector, in particular. The unreliable specification and protection of the property rights and contract rights, abundant administrative barriers, excessive regulation of the business activities, aggressive of supervisory and monitoring behaviour of the state, etc., at once raises the above-mentioned risks of the non-repayment of credits, and causes the generally high level of unproductive transaction costs frequently having implicit or shadow nature. The need for compensation of such costs also leads to banks being compelled “to overstate” credit prices in relation to the level which could exist if the institutional environment were of better quality.
In the first part of the paper, general description of the existing approaches to empirical statistic analysis of the influence of institutional factors on various parameters of economic development is provided, while the second part sets out the traditional position concerning the consideration of factors determining the level of credit price. The third part is devoted to the description of the utilised statistical data, and the fourth one features results of the empirical calculations undertaken to test of the initial hypothesis, and their scrutiny. The fifth section comprises conclusions and recommendations for improving the banking sector development strategy for the Russian Federation as a factor in improving the overall investment climate; appendices to paper contain immediate results of the econometric analysis.
Published on 29 Sep 2005
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