UPDATE 2: Russian companies’ debt burden on brink of safety – cbanker

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MOSCOW, Apr 19 (PRIME) – Russian companies’ debt burden is on the brink of being safe for emerging economies, First Deputy Central Bank Chairwoman Ksenia Yudayeva said at a conference on Tuesday.

“Debt financing is the main form of financing of companies in our country, we are already above an average debt burden, or I would say at the breaking point of the level, which is considered safe for emerging markets,” she said.

“But you have to understand that not only in our country, but anywhere in the world debt financing is not the key source of financing investment. Investment is mainly financed from profit. Companies also raise shareholder equity for investment and here we are lagging behind other emerging economies a lot.”

Chairwoman Elvira Nabiullina said that introduction of foreign currency restrictions of any kind is absolutely unacceptable.

The central bank continues monitoring conversion of exporters’ revenue into rubles, and there is no need to increase the control, she said.

On the other hand, the launch of quantitative easing in Russia has no sense because it would spur inflation. “If we see commercial intermediaries and their role in risk assessment, assessment of borrowers, of course, I think that higher money supply is unlikely to lead to higher lending, but will have entirely different consequences: inflation, capital outflow.”

The banking sector is stable, Nabiullina said. “The situation is not simple in the banking sector, of course. The banking sector reflects what is happening in the economy ... But the banking system feels quite stable in terms of its main indicators.”

She said that the central bank could approve the launch of a bail-in mechanism as an alternative to license cancellation but only corporate shareholders will be allowed to recover troubled banks.

Yudayeva separately said that consumer prices may rise in 2016 as much as in 2013, or by 6.5% if there are no new shocks, but this growth rate is not enough for the economy to grow because inflation is too volatile for long money to appear.

“I would like to point out that the current growth of prices since the beginning of the year has been close to the one we had in 2013. If there are no new shocks, the price growth by the end of the year will be comparable to 2013,” she said.

“But it is not enough from the point of increasing dynamics and quality of possible economic increase. Because the level of inflation is too high and inflation’s dynamics is still too volatile for long money to form in the economy,” she said.

A central bank’s forecast for 2016 envisages inflation of 5.5–6.5% if the average annual oil price is U.S. $50 and inflation of 7% if the oil price is $35.

She also said that Russia’s inability to balance the budget may increase volatility and new shocks at financial markets. Russia should seriously optimize its budget, otherwise it would repeat mistakes of other BRICS states, where budget situation led to high currency volatility.

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