Central bank says foreign currency liquidity stable in Russia

MOSCOW, Nov 26 (PRIME) -- The risks of foreign currency liquidity squeeze at Russian bank are still limited, the central bank said in a statement on Thursday.

“As the liquid asset reserve in foreign currency normalizes, the situation with foreign currency liquidity remains calm. Moreover, the risks of a foreign currency liquidity squeeze in the banking sector are still limited as the share of foreign currency on banks’ books has fallen  significantly in the past years,” the report read.

Banks did not show significant demand for central bank’s foreign currency liquidity instruments in April–September thanks to good reserves, and the cost of foreign currency borrowing remains low on the local market.

Central Bank First Deputy Chairwoman Ksenia Yudayeva told reporters that the bank still expects the banking sector to maintain structural liquidity surplus at the end of 2020. The regulator previously reduced its estimate of the surplus to 1–1.4 trillion rubles as of the end of the year from 1.4–2 trillion rubles.

The central bank also said in its report that OPEC+ may delay to increase oil production from January 1 as the global oil prices are under the pressure from a new onset of the coronavirus. A slowdown in oil demand recovery may have a short-term impact on the oil prices. Under the central bank’s baseline forecast, an average annual price of Urals oil amounts to U.S. $41 per barrel in 202, to $45 per barrel in 2022, and to $50 in 2023.

Possible contraction of export oil prices and prolongation of a reverse damping mechanism in the oil sector may worsen the financial condition of oil refining companies, which raises banks’ risks on loans provided to oil refineries, the authority said.

The central bank plans to raise the cost of using an irrevocable credit line for banks to the previous level of 0.5% on April 1, 2021 from 0.15%, to which is was cut in April as a support measure during the coronavirus.

Russian financial brokers raised their revenues by 4% on the year to 16 billion rubles in January–September as the clients became more active, and clients’ money on accounts of brokerage companies grew by 20% in the period to 6.2 trillion rubles as of October 1, including money of individuals, which grew by 471 billion rubles to 1.5 trillion rubles.

Combined investment of individuals in open mutual investment funds, closed mutual investment funds, and exchange mutual investment funds rose by 154 billion rubles in the period to 590 billion rubles. The assets on individual investment accounts also went up 89 billion rubles to 286 billion rubles.

Nevertheless, the bank sees crossflows of savings of Russians from the banking deposits to the stock market as a natural stage of market development, and risks for individuals from investing in alternative instruments are limited.

During the coronavirus pandemic, the share of foreign currency loans issued by banks to the Russian companies grew, but it is temporary, and does not contradict the general trend of large clients reducing the share of foreign currency loans.

But there are risks in concentrating corporate debts in the hands of a small number of large companies.

“The high concentration of corporate debt in a handful of large borrowers may be a source of a systemic risk, as 92 largest Russian companies account for about 37% of combined debt of the non-financial sector, and the share has grown by 4 percentage points since the end of 2016,” the central bank said.

The combined corporate loan portfolio of Russian banks has gone up by 8.7% since January 1 to 45.109 trillion rubles, the regulator said.

The authority also does not expect a mortgage bubble any time soon as there are no systemic risks on the market now.

(75.4727 rubles – U.S. $1)

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