Translated material
Spring deficit
The Bank of Russia is preparing for a decrease in liquidity in March and April
In March, the Central Bank began providing loans secured by non-marketable assets. This was stated in yesterday's Bulletin of the Bank of Russia. Thus, the promise of the first deputy chairman of the Central Bank, Alexei Ulyukaev, who in early February announced the regulator’s plans to expand refinancing opportunities for banks in this way, has been fulfilled. Analysts note a very high rate on the Central Bank loan and believe that this instrument will not be in widespread demand by the market, but it can help banks in the most difficult liquidity situations.The Central Bank will provide loans for a month at a rate of 9.25% per annum. Promissory notes and claims under loan agreements denominated in rubles, dollars, euros or British pounds will be accepted as collateral. As Mr. Ulyukaev stated in February, banks will be able to obtain refinancing secured by any credit claims against unrated borrowers. In this case, adjustment factors and stricter limits on banks will be used. The expansion of financing opportunities is due to the fact that in March and April banks will need a lot of cash in order to pay off external loans and pay VAT for the first quarter of this year.
“Last year, when liquidity problems arose in the market, the Central Bank significantly expanded the Lombard list in order to facilitate lending for banks,” recalls Yaroslav Lisovolik, chief economist at the Russian Deutsche Bank. “Perhaps the regulator does not exclude the possibility that this spring the situation may also be difficult.”
Despite the fact that market participants consider the very fact of the emergence of lending against non-marketable assets to be positive, they believe that the rate on such an instrument is very high. “There must be a very bad liquidity situation in the market for banks to take out loans from the Central Bank for a month at 9.25% per annum. This is too high a rate,” says Trust Bank analyst Dmitry Bragin. As you know, now the rate for one-day repo auctions is up to 6.25% per annum, the rate for direct repo transactions for a period of seven days will be 6.75%, for a period of 90 days - 9.75% per annum. For pawn lending transactions for two weeks, the rate will be 7.25% per annum.
“The stakes are really high,” admits Mr. Lisovolik. “However, it is economically justified, because the Central Bank accepts assets that have low reliability as collateral, and accordingly takes on increased risks.”
The publication's interlocutors disagree on how much this tool will be in demand by the market. “We expect that the peak in demand for liquidity will occur at the end of April, when there will be a large outflow of funds from the market due to VAT payments,” says Vladimir Bragin. “However, for now there is every reason to believe that banks will be able to solve problems using other refinancing instruments previously proposed by the regulator.”
Obviously, much will also depend on what other measures the authorities take to maintain liquidity - for example, whether they will place temporarily free budget funds or money from development institutions on the market.
Yaroslav Lisovolik believes that although this instrument is unlikely to become widespread, it is possible that banks will have to use it: “By offering this instrument, apparently, the Central Bank decided to insure itself in case the market situation worsens in the spring and if other instruments are not enough. So, perhaps banks will start taking out such loans.”