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The Role of Financial Markets in the Investment Process

15 February 2019
Роль финансовых рынков в инвестиционном процессе


Debt financing dominates for investment projects in Russia

“We have an obvious imbalance with bank financing being used to fund investment projects. On the other hand, there are good examples of how banks are moving towards innovative financial engineering and launching new products, among other things”, Vice President of the Russian Chamber of Commerce and Industry Vladimir Dmitriev said.

Russia faces the challenge of drastically increasing investment

“In 2024, investment in fixed assets should amount to RUB 45 trillion. Today, it amounts to RUB 17 trillion”, said Vladimir Gamza, Partner of the Group of Financial and Consulting Companies FalconFinance, Audit Group.

The stock market and citizens’ funds could be a source of long-term money for the economy 

“The groundwork is being laid so that Russian can advance in terms of developing the stock market and provide our economy with long-term and relatively cheap money”, Dmitriev said.

“We have 18% in investments. Cash and deposits account for everything else. [...] I believe that the structure of Russians’ savings will change radically within ten years. The share of investment products will reach at least 60%”, said Vladimir Potapov, Chief Executive Officer at VTB Capital Investment Management, Head of the Brokerage Department, and Senior Vice President at VTB Bank.


Investors are not interested in funding long-term projects

“People have no mood for investment. It’s a speculative mood. [...] There is demand for people to invest somewhere. The main problem is where to invest”, said Sergey Bezdelov, Director of the Center for Digital Economy Competencies at Plekhanov Russian University of Economics.

“Lending has increased overall, but only at the expense of individuals. Lending to the real economy by non-financial organizations has decreased when compared to GDP”, Gamza said.

“Any investment is measured in terms of its targeted nature and how much it precludes the risks of potential losses”, said Sergei Belyakov, President of the Association of Non-State Pension Funds, Chairman of the Management Board at the National Association of Investment and Development Agencies, and Chairman of the Presidium at the Retail Companies Association.

Insufficient development of the financial system in the regions

“We are facing a catastrophic situation in terms of the development of regions through the credit system. The regions have no financial system [...] In 17 regions, there isn’t a single regional bank, while in another 17 regions there is only one regional bank”, Gamza said.


Creating incentive mechanisms for long-term investment 

“Decisions have been taken about the Government being ready to take on risk associated with long-term investments as part of financing for the project factory that Vnesheconombank is launching. If the interest rate deviates too much from the key rate, the Government will undertake the risk of this deviation. Consequently, our banks will be able to credit long-term projects more actively”, Chairman of the State Duma Committee on Financial Markets Anatoly Aksakov said.

“If the state truly wants to attract long-term money to the economy, and it’s almost always private investment, [...] then we need to create opportunities for strategic investors by supporting their risk appetite”, Belyakov said.

“The regions have a very important role in stimulating investment processes”, said Yaroslav Lissovolik, Senior Managing Director and Head of the Analytical Directorate at Sberbank.

“Permanent financing arrangements need to be created. [...] Securitization could become one of the market drivers [...] We have established a special working group with the Bank of Russia that has long been developing lending standards for subsequent securitization. [...] We have developed standards for securitization itself”, SME Bank Chairman of the Board Dmitry Golovanov said. 

“We need a transmission mechanism to turn savings into investments. [...] We need a special programme for the development of institutional investors, the development of regional financial systems, and the legalization of shadow capital in the country”, Gamza said.

Improving financial legislation

“We have adopted a law on syndicated lending that is close to global practices”, Aksakov said.

“Electronic digital areas of focus will also be actively developed. We have discussed issues related to digital laws and come up with a schedule for their adoption. The market has been waiting for a law on the investment platform for a long time”, Aksakov said.

Introducing digital technologies in the financial sector

“Digitalization is something that has become part of our life. There’s no getting around it. More than 30% of the population already uses online banking [...] and this figure will soon top 60–70%”, Potapov said.

“Digital banking is sort of an alternative sector of the market. [...] It’s more for consumer lending and small and medium businesses, but still we have to start with something”, said Vugar Aliyev, Partner and Head of Financial Services Practice at KPMG in Russia and the CIS. 

Attracting external financing 

“We won’t be able to ensure serious economic growth without looking for ways to attract external resources. One of the options for attracting foreign resources is to work with development banks. [...] This is very important for the Russian economy”, said Dmitry Pankin, President, Chief Executive Officer, and Chairman of the Board of Directors of Black Sea Trade and Development Bank 

Enhancing the investment awareness of the population

“Investments are accessible, but it's not easy. That is why the public needs to be educated with the help of robot advisers and quality analysts. Financial awareness will be a very important subject for us”, Potapov said.