The Role of Regional Banks in Ensuring Sustainable Development of

the Regions of the Russian Federation

Dmitriy Shor

, Inna Shor

and Dildarakhon Shelestova

Volgograd State University, 100, Prospeсt Universitetsky, Volgograd, Russia

Keywords: Regional Banks, Stable Development, Regions, the Banking System, Banking Products, Banking Services.

Abstract: The socio-economic situation in the regions of the Russian Federation is largely connected with the level of

development of regional banks. Regional banks play an important role in ensuring the stable functioning of

their region of dislocation as the scale of their activity, their saving and investment activities create the

environment for economic growth in the regions and the increasing of the population’s standard of living.

What is more, regional banks have a social responsibility connected with the development of local education,

healthcare, culture and sport. However, despite their high importance, regional banks are experiencing a

decline in the quantity and volume of their activities due to high competition pressure from the large federal

banks. In this regard there are now questions of the prospects of regional banks’ further development, their

support instruments and the contribution to their effective functioning. This has set the goal of our research

connected with determining the trends, problems and priority guidelines for the development of regional

banks in ensuring stability in all regions of the Russian Federation. To achieve this goal, we have applied a

set of scientific methods, including observation, expert assessment, generalization, analysis and comparison.

As a result, we described the development trends of regional banks from 2013 to 2020, which allowed us to

draw conclusions on the transformation of the Russian banking system and the current problems of regional

banks. This became the basis of creating measures to strengthen competitive advantages of regional banks

and to discover their potential in ensuring stable development of the regions of the Russian Federation.

1 INTRODUCTION

The regional bank sector is a crucial part of regional

economy. Its development and investment potential

are predetermined mostly by the organized banking

structure. The presence of these regional banks within

the banking structure creates a highly competitive

banking environment (Ianov and Antoniuk, 2017).

On the one hand, effective development of

regional banks depends on the affluence of the

regions where they function, the local population and

business. On the other hand, regional banks greatly

influence the stability of regional development, the

local population and business. Generally, we can

speak of regional banks as specialized lending

agencies, as each region has its own way of social and

economic development. This specialized nature of

regional banks can be seen in the following. Knowing

https://orcid.org/0000-0002-4202-0144

https://orcid.org/0000-0003-4154-1199

https://orcid.org/0000-0002-0884-8458

the different aspects of regions’ development,

specifically the demands of the local population and

business, gives regional banks a competitive

advantage against other lending agencies functioning

in the region (Belke and others, 2016). Products and

services of reginal banks are highly personalized and

customized for the clients’ demands. Regional banks

have a wide range of options allowing for an

individual approach to almost every client,

specifically thanks to cooperative development of

banking products and services. It is important to stress

that regional banks have a higher interest in crediting

small and medium-sized businesses in the region, for

example, through regional support programs.

We are inclined to believe that the current global

instability due to the COVID-19 pandemic has made

the role of regional banks that much more important.

Thanks to their immediate correlation with regional

396

Shor, D., Shor, I. and Shelestova, D.

The Role of Regional Banks in Ensuring Sustainable Development of the Regions of the Russian Federation.

DOI: 10.5220/0010591203960400

In Proceedings of the International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 396-400

ISBN: 978-989-758-519-7

economy, regional banks can have an effective

cooperation with the local population and business,

who are especially in need of banking products and

services.

2 RESEARCH METHODS

A substantial contribution to the research of the

particularities of regional banks’ functioning was

made by several authors, among whom are Avis

(2017), Zver’kova (2017), Voronova (2017), Fat’kina

(2019), Bibikova (2019) and others. However, this

subdiscipline’s status analysis shows a lack of one

unified way of developing regional banks, aimed at

ensuring market economy stability, which does not

entirely uncover its potential and, consequently, does

not strengthen competitive positions of regional

economies.

The methodological framework of our research

comprises of the theoretical and practical works of

contemporary authors on the functioning of regional

banks. During this research we applied the systematic

approach, as well as certain scientific methods,

including observation, expert assessment,

generalization, analysis and comparison.

3 RESULTS

Regional banks make up a cluster of the modern

banking system of the Russian Federation. Given the

geographic location of the country, they play an

important role in making banking product and

services more available and keep the banking market

competitive. In this regard regional banks put a

special emphasis on making higher-quality banking

products and services, keeping in mind the interests

of their clients. This makes them the force driving the

regional economic development forward.

According to data from the Central Bank of the

Russian Federation as of July 1, 2010, Russia had 92

regional banks with the basic license, which

comprised more than 70% of all banks with the basic

license. This accounted for not more than 0.2% of the

total assets of the Russian banking system and 0.1%

of the credit portfolio and obtained funds from the

county’s entities and persons. Despite these numbers,

regional banks with the basic license have an

important social function of ensuring the availability

of banking products and services to the local

population and business. They have an especially big

impact on crediting small and medium-sized

businesses early in their activity, when they do not

have any credit record.

3.1 Major Trends in the Development

of Regional Banks in the Russian

Federation

According to the analysis of the official data of the

Central Bank of the Russian Federation, the major

trends in development of regional banks of the

Russian Federation from 2013 to 2020 are as follows:

 regional banks’ deleverage in the banking

system assets of the Russian Federation (from

8.8% on May 1, 2013 to 4.4% on May 1, 2020)

and decrease in their number due to not only

license revocation, but also voluntary

liquidation (for the period of January 1, 2013-

July 1, 2020, when 198 regional banks were

liquidated or had their license revoked; as of

July 1, 2020 their number totaled to 162);

 reduction of regional banks’ traditional

activities (crediting entities and persons,

obtaining funds from persons) and loss of their

stand in financing actual economy (as of

May 1, 2020 their share in retail and corporate

lending did not surpass 5%);

 transition from traditional banking to placing

free liquidity in low-risk assets with a lower

cost-effectiveness – the bonds and deposits of

the Central Bank of the Russian Federation (as

of May 1, 2020 the deposit to credit ratio was

159% with the mid-market value of 121%);

 escalation of the technological inferiority to

major federal banks, which are actively

developing IT-technologies and digital

customer service; transition to the “survival”

tactic.

3.2 The Characteristics of the

Transformation of the Banking

System in the Russian Federation

Currently the Russian Federation is undergoing the

process of integration of the banking system,

accompanied by the reduction of the number of

regional banks (Donetskova, 2021). On the one hand,

this trend leads to concentration strengthening, that is,

a lower number of small and medium-sized banks and

a higher number of large banks. This, in turn, has a

positive influence on the stability of the country’s

banking system from the perspective of ensuring high

profitability and quality of credit portfolios.

Moreover, the less banks there are, the easier it will

The Role of Regional Banks in Ensuring Sustainable Development of the Regions of the Russian Federation

397

be for the Central Bank of Russia to control and

regulate their activity (Lavrushin, 2016).

On the other hand, this setting of a growing

banking system strengthens the power of large federal

banks in terms of regulating the market rates. This has

a negative impact from the standpoint of potential

economic growth. One of the characteristics of

regional banks is their immediate proximity to and

connection with regional economy, which, as a result,

allows them to deal with questions of providing

banking products and services faster and more

competently. Unlike large federal banks, the regional

ones are generally more concentrated on keeping in

mind the unique traits of the local clients and having

a deeper understanding of their demands (Malakhov

and Timerkhanov, 2020). This being said, the current

crisis caused by the COVID-19 pandemic has stressed

the upmost importance of regional banks and the need

to up the effectiveness of their activity through

offering a large spectrum of banking products and

services based on digital technologies. Considering

the growing demands of the subjects of regional

economy and the high competition rate within the

banking market it becomes apparent that the quality

and the spectrum of regional banks’ products and

services have to grow constantly.

Among the negative consequences of the

integration of the banking system of the Russian

Federation are the following:

 a higher financial dependency of the regions’

economy on the state of the non-regional

banks;

 a lower influence of regional banks on the

competition, the formation of prices and the

effectiveness of transferring savings into credit,

which has a negative impact on the regions’

economic growth;

 a lower availability of the banking products and

services.

However, it is impossible to avoid the further

transformation of the banking system of the Russian

Federation, which manifests itself in the absorption of

regional banks by larger ones, self-liquidating or

court-ordered liquidating of regional banks due to

bankruptcy or inability to fulfill statutory

requirements of the Central Bank of Russia.

Additionally, we acknowledge the fact that the

processes of merging, absorption and closing of

regional banks happen consistently, and want to note

that if a bank has a secure position on the market, then

it is not its size, but its ability to fully comply with the

operating regulations and norms of banking that

matter.

4 DISCUSSION

The current issues in banking caused by the COVID-

19 pandemic manifest themselves in the following

ways:

 the usage of the slow-response business model,

mostly caused by the need to adapt to higher

risks of doing business;

 the inefficient level of digital activity, which

weakens the competitive ability within the

banking market;

 the limitations on taking part in realizing

governmental programs due to high a banking

rating, a low guarantee limit and the difficult

procedure of acquiring the guarantee of AO

“Korporatsia MSP”.

Naturally, ensuring a stable development of the

regions demands a set of governmental regulations

aimed at improving the competitive environment

within the banking market through lifting the

discriminatory demands for regional banks. This

presupposes the expansion of the scale of crediting of

small and medium-sized businesses by regional banks

by increasing the AO “Korporatsia MSP” guarantee

limit, realizing the Central Bank of Russia’s ability to

refinance the accredited subsidized soft loans under

the 50% guarantee support by the AO “Korporatsia

MSP” or without the guarantee support of the AO

“Korporatsia MSP”, but granting another form of

safeguarding (Shor et al., 2020).

Regional banks should be put into a separate

category when forming all types of governmental

support. Regional and federal banks have a different

level of risk, thus the requirements for them must

differ and consider the particularities of their work.

Moreover, governmental programs must have special

limits fitting certain criteria personally for regional

banks.

On the whole it seems plausible that the increasing

number of regional banks taking part in realizing

governmental programs will allow them to

demonstrate their full competitive advantages and

keep their clientele, which will have a positive impact

on the quality and the level of availability of banking

products and services.

Further prospects of regional banks’ development

are highly connected with small banks, which did not

find their niche on the market, including in the form

of voluntary license revocation, leaving the banking

system of The Russian Federation. They are also

connected with the remaining banks that operate

under the model of servicing a small group of people

in the setting of keeping a big portion of liquidity.

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

398

5 CONCLUSIONS

The modern environment should lead regional banks

to institutionalize the lessons learned through the

COVID-19 pandemic. They need to come up with a

development strategy that would help them

strengthen their stability and competitive ability,

speeding up the transformation in the post-pandemic

setting. Hyper-personalized banking products and

services should become the foundation of the regional

bank-client relationship.

Regional banks can acquire the full understanding

of clients through the integration of the disconnected

architecture of client data and combining it with an

analysis based on the digital technologies,

specifically AI (Butenko, 2020). It is also important

to increase the involvement of regional banks’ clients

through a balance of digital and human interaction,

intellectual use of client data and development of new

partner relations with a client-oriented management.

On the whole, digitalization should become the

basis of regional banks’ operation, transforming

traditional ways of sharing information into digital

ones though giving feedback faster and making

information more secure and available. This is driven

by the following advantages of digitalizing the

banking system:

 better customer service;

 higher number of regional banks’ clientele due

to service convenience (e.g., clients have an

opportunity to choose offers suitable for them

regardless of the location of regional banks;

there will be an opportunity to make easy, fast

and visually open transactions), which allows

them to save time;

 better understanding of the demands of the

regional banks’ clients and an opportunity to

form personalized offers, which helps perfect

the means of regional bank-customer

communication;

 lower expanses of regional banks and their

clients due to the usage of ATMs, electronic

transactions, etc.;

 more effective and controlled operations of

regional banks;

 more flexibility in terms of making decisions

based on digital data;

 lower risk of the human factor as a result of

digitalizing.

Regional banks are taking part in the digitalization

process, thus forming their public image and showing

their clients that they are modern, state of the art

organizations. Timely incorporation of the

digitalization instruments lets them create a digital

banking ecosystem. Additionally, the digitalization of

regional banks is ambiguous by nature. On the one

hand, the implementing of digitalization modernizes

the regional banks’ products and services, making

them readily available, as well as creating a higher

demand for them, which has a positive impact on the

financial performance of regional banks. On the other

hand, mass transition to digital operations leads to

cyber threats and a lower security level of the

operations connected with the active transition to the

remote digital format of banking operations.

The COVID-19 pandemic has dramatically

shifted the landscape of banking risks. The current

situation dictates that regional banks pay closer

attention to operational risks, which makes complex

monitoring and forming a risk control culture,

specifically in the field of cyber-safety, some of the

most important tasks for regional banks.

The crisis caused by the COVID-19 pandemic has

outlined the following directions for regional banks’

development:

 offering the best conditions on banking

products and services to clients;

 forming long-term relations with clients

without decreasing the quality of banking

products and services in times when these is a

macroeconomic decline in the regions;

 standardizing procedures, setting exact

amounts of time for customer service when

accepting a batch of documents, making

decisions and registering the purchase of

banking products and services;

 diversification of the deposit, credit,

investment and other kinds of portfolios;

 activating the digitalization of all activity.

In turn, further strengthening of competitive

positions of regional banks with the aim of having a

stable development in the regions of the Russian

Federation is predetermined by the influence of the

following factors:

 formation of a significant capital base, which

determines high and stable potential of further

growth of credit assets, providing a stable

income;

 financial help of the development strategies;

 realization of the scientific development

strategy;

 provision of stability and diversification of the

resources necessary for realizing long-term

economic development programs.

The Role of Regional Banks in Ensuring Sustainable Development of the Regions of the Russian Federation

399

In conclusion, we would like to note that the use

of the complex approach by regional banks to

understanding these factors will allow them to fully

realize their competitive advantages, in particular:

 flexibility and efficiency in making decisions

when servicing clients (first and foremost the

local population and small and medium-sized

businesses) and changing of own business-

models;

 meeting the demands on banking products and

services in underdeveloped regions where the

federal banks do not see any economic reason

for opening their branch offices;

 the possibility of creating and offering

personalized banking products and services in

regard to the characteristics of a particular

region, which differ from mass-offers from

federal banks;

 forming trusting relations with clients, which

presupposes resolving the questions of banking

services through personal agreement.

REFERENCES

Avis, O. Y. (2017). Sovremenniie problemi

funktsionirovaniia regional’nikh bankov: rossiiskii i

zarubezhnii opit ikh resheniia. Regional’naia

ekonimika i upravlenie, 4 (52).

Belke, A., Haskamp, U. and Setzer, R. (2016). Regional

bank efficiency and its effect on regional growth in

"normal" and "bad" times. Economic Modelling, 58:

413-426.

Bibikova, E. A., Shekshueva S. V. and Rakhimullina P. K.

(2019). Otsenka finansovoi deiatel’nosti regional’nikh

bankov v sovremennoi Rossii. Izvestiia visshikh

uchebnikh zavedenii. Seriia: Ekonomika, finansi y

upravlenie proizvodstvom, 4 (42): 87-93.

Butenko, E. D. Iskustvennii intellekt v bankakh segodniia:

opit i perspektivi. Daidzhest-Finansi, 25 (2): 230-242.

Donetskova, O. U. (2021). Sostoianie mezhbankovskoi

konkurentsii na rossiiskom rinke. Finansi: teoriia y

praktika, 25 (1): 143-156.

Fat’kin, A. V. (2019). Vliianie regional’noi glubini

bankovskogo kredita na maloe i srednee

predprinimatel’stvo v Rossii. Regional’naia

ekonomika: teoriia i praktika, 1: 87-102.

Ianov, V. V. and Antoniuk, O. A. (2017). Finansovaia

ustoichivost’ regional’nikh bankov v institutsional’nikh

preobrazovaniiakh bankovskoi sistemi.

Ekonomicheskie nauki, 9 (154): 53-56.

Lavrushin, O. I. (2016). Optimizatsiia strukturi bankovskoi

sistemi Rossii. Moskva, KNORUS.

Malakhov, I. O. and Timerkhanov, R. Sh. (2020). Problemi

konkurentosposobnotsi regional’nikh bankov. Vesti

nauchnikh dostizhenii. Ekonomika y parvo, 3: 116-119.

Shor, D.M., Shor, I.M. and Shelestova, D.A. (2020).

Government support of small and medium-sized

enterprises as a factor of the competitiveness

strengthening of Russia. Lecture Notes in Networks and

Systems, 110: 125-132.

Voronova, N. S. and Miroshnichenko, O. S. (2017).

Regional’nie banki Rossii: problemi rosta y perspektivi

razvitiia. Finansi: teoriia y praktika, 21 (4): 40-53.

Zver’kova, T. N. (2017). Regional’nie banki: istoricheskii

opit funktsionirovaniia i sovremennost’. Finansovaia

analitika: problemi i resheniia, 10 (8): 954-968.

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

400