Believe what is printed

The Bank of Russia will conduct a money issue to buy Sberbank shares

The Bank of Russia intends to conduct a money issue in order to buy back Sberbank shares as part of their upcoming placement. First Deputy Chairman of the Central Bank Alexey Ulyukaev spoke about this yesterday. “Sberbank shares will be purchased not at the expense of the Central Bank’s profits, but through the issue of money,” he said. The purchase of Sberbank shares will thus entail a simultaneous increase in the Central Bank's assets through these securities and its liabilities through the issue of money. Such a decision will increase the money supply in the banking sector and increase inflationary pressure on the economy.

As you know, the National Banking Council recently decided that during the additional issue of Sberbank, the placement of which is scheduled for the end of February this year, the Central Bank will use its pre-emptive right and will be able to buy back 892 thousand 601 shares. The total volume of the issue will be 3.5 million ordinary shares worth RUB 10.5 billion. at par value 3 thousand rubles. The market value of the bank's securities is $3.4 thousand. The Central Bank's share in the authorized capital of Sberbank will be reduced to approximately 55% from the current 60.57%. As a result of the placement of an additional issue, the authorized capital of Sberbank will increase from 60 billion to 70.5 billion rubles. Please note that the placement will take place only on Russian stock exchanges; private individuals will also be able to buy shares.

Market participants called the Central Bank’s decision to simply print money to buy out the additional issue and not use its profits for this as expected. “It was obvious that the Central Bank would not have enough profit to buy back part of Sberbank’s issue,” says Alfa Bank analyst Natalia Orlova. - Although, to be honest, it is not entirely clear why the Central Bank needed to take part in the additional issue at all, these securities could be placed among private investors. Since it is unknown what the price of shares will be when the Central Bank buys them, it is difficult to calculate exactly how much money will have to be issued. Taking into account the market value of shares, the Central Bank will have to issue about 80 billion rubles. Although this is less than 1% of the entire monetary base, it is still an additional inflationary burden on the banking sector.” It is quite possible that the Central Bank, which is actively fighting inflation, will try to mitigate the consequences of this issue. According to Ms. Orlova, “in order to reduce liquidity in the sector, the Central Bank can issue OBR or attract funds to its deposits.”

As Olga Belenkaya, an analyst at Finam Investment Group, notes, “the important thing is that this money will be directed into the economy; Sberbank will use it to increase lending. This means that the corresponding multipliers will work here. Taking into account the growth of the monetary base in 2006 by 1.2 trillion rubles. the volume of money emission will be approximately equal to the average monthly increase in this indicator. Despite this, this money issue will not have a very significant impact on inflation.”

Natalia ROMANOVA