Russian Central Bank to bring in new forex rules


Russia’s central bank decided to introduce new rules to discourage banks from attracting foreign exchange deposits and firms from taking out forex loans because it wanted to ease pressure on the ruble and curb its volatility, three banking sources said.
The Russian currency has lost around 60 percent of its value against the dollar since mid-2014, amid weak oil prices and sanctions on Moscow related to Ukraine.
However, the central bank has promised not to resort to capital controls and no longer intervenes in currency markets to support the ruble.
Instead, it has embarked upon a campaign to try to gradually de-dollarize the banking sector and has ordered banks to set aside more capital against forex loans from April 1. It is also considering increasing reserve requirements for banks holding forex deposits.
“The central bank is trying to curb ruble volatility and have more control over inflation,” said one of the sources, from a major bank.
“All these regulatory measures are links in the same chain and aimed at lowering shocks on the forex market.”
The measures will lead to higher interest rates for forex loans and make forex deposits less attractive.
Forex loans account for around a third of Russia’s total banking portfolio, central bank statistics show. Forex lending is growing in nominal terms, the same data shows, but registered almost no growth last year in ruble terms because of the currency’s devaluation.
The proportion of forex deposits — mostly in dollars — increased to 35 percent from 20 percent at the start of 2014, again mainly due to the ruble’s weakness.
Elvira Nabiullina, the central bank’s governor, said that most banking loans should be in rubles to prevent forex risks “turning into systemic risks.”
She said the retail and real estate sectors were heavily exposed to forex loans despite generating no forex revenue.
The energy sector is seen as less exposed. Steel and coal producer Mechel recently became the biggest company to consider converting much of its debt into roubles.

For forex deposits, Russian banks, dominated by state lenders Sberbank and VTB, already offer low rates with ruble deposits earning interest rates of around nine percentage points higher.
Sergei Voronenko, an analyst at Standard & Poor’s, predicted the central bank’s measures would have a limited effect.
“They are unlikely to succeed in radically changing the current situation,” he said. “However, the measures could be useful if a potentially more stressful situation develops where the ruble weakens still further.”
The first banking source said companies had been buying forex to hedge their bets against the falling ruble rather than out of genuine need. Individuals might now switch out of forex into rubles to take advantage of higher ruble interest rates, he said.
Another senior banking source said he expected depositors to put their forex deposits into safety deposit boxes.
Talking to Reuters, Nabiullina reiterated that the central bank still aimed to hit its inflation target of 4 percent by the end of 2017, with ruble volatility “gradually lowering.”
“With less dollars in the economy you can lower the ruble’s volatility. This is essential to control inflation and to reach the 2017 target,” the first banker said.
VTB bank, which plans to use spare forex liquidity to buy back some of its bonds, said its decisions on forex assets and liabilities would be determined by the ratio of returns and costs.
Sberbank said it welcomed the thinking behind the central bank’s moves, but said it thought the measures needed to be tweaked to only target borrowers judged to have elevated forex risks. It also warned that indebted exporters could face forex risks they could not control if they converted their loans into rubles.
Gazprombank said it already has a policy of reducing the number of forex assets.




Please enter your comment!
Please enter your name here