UPDATE: Nabiullina says cbank needs to redefine Russia’s financial system

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MOSCOW, May 26 (PRIME) -- The central bank needs to define the new parameters of functioning of Russia’s financial system, revise its regulatory approaches and formulate the ways to recapitalize the banks and fight against sanctions, Chairwoman Elvira Nabiullina said during a meeting with the Russian Banking Association on Thursday.

“We have to define the new parameters of functioning of Russia’s financial system. We should also revise our approaches to regulation so that the banks could continue lending operations and support the economy’s structural transformation,” she said.

“We need to design approaches to recapitalization of the banks and to the fight with what people have started to call ‘the sanctions arbitrage’,” she added.

According to the central bank’s preliminary estimate, Russian banks’ mortgage portfolio fell by 0.2% in April, as compared with the previous assessment of 0.1%, while the corporate loan portfolio remained flat, and issued unsecured retail loans decreased by 1.7%, Nabiullina said.

She added that the figures demonstrate that the current monetary conditions are tough, but pro-inflation risks have decreased significantly.

The central bank expects corporate lending to rise 5% in 2022 thanks to reduction of the key rate and state subsidies, and confirms its mortgage lending growth outlook for 2022 at 10–15% thanks to a wider government support, she said.

The chairwoman said that Russian banks should continue to reduce foreign currencies in their balances in the conditions of Western sanctions, including transferring the remaining mortgage loans denominated in foreign currencies into rubles.

The recent reduction of the key rate will not create additional pro-inflation risks, Nabiullina said.

Russian banks may need additional capital, but the mechanism of capital injection by putting OFZ government bonds to the balances will be insufficient so the banks will need to adjust their business models and restructure the balances, as well as a market mechanism to redistribute clients, risks and resources between the banks should be designed, she also said.

Nabiullina added that the central bank is in talks with foreign depositaries on the issue of frozen income on the securities they list. The status of the funds is still undefined so any systemic decision would be premature.

The chairwoman said that the central bank will not require that the banks should shift to a comprehensive risk assessment model during a year and is ready to raise the threshold for obligatory control over banking operations to 1 million rubles from the current 600,000 rubles and over property deals to 5 million rubles from 3 million rubles.

The central bank and the Federal Financial Monitoring Service are discussing creation of a unified base of relevant clients’ identification data for financial organizations, she also said.

Nabiullina told reporters on the sidelines of the meeting that in July the central bank will revise its outlook on the key rate trajectory and the dynamics of Russia’s gross domestic product (GDP) in 2022.

The present outlook, issued in April, envisages a fall of 8–10% in GDP in 2022, and growth up to 3% in 2023 and 2.5–3.5% in 2024.

The chairwoman also said that the regulator will reduce the inflation outlook for 2022 from 18–23%, projected in April.

The central bank does not see risks of a second wave of inflation in the autumn, as well as risks of the ruble strengthening for the financial stability, she added.

Russia has sufficient financial resources to service its external debt, and from the point of view of payment processing it plans to pay the debt in rubles, according to the order of the Finance Ministry, Nabiullina said.

Russia continues the work to challenge Western states’ decisions to freeze its foreign currency reserves in the court, she also said.

Nabiullina said that the merger of Otkritie Financial Corporation Bank and VTB Bank is still on the agenda, the central banks wants to sell off Otkritie to return part of expenses on its bailout.

VTB CEO Andrei Kostin said that for him the decision on the merger has already been made.

“There is a decision of the president… The decision has been made, it is being implemented. I have and will have no other comments, for me the issue is decided… The concept of the merger already exists,” he said.

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