Russian lenders are turning to more expensive collateral to borrow needed cash from the central bank as the crisis with Ukraine prompts withdrawals by savers.
Commercial lenders borrowed as much as 493 billion rubles ($13.9 billion) last month from Bank Rossii through foreign currency swap operations, the most in five years, according to central bank data. These cash injections come on top of as much as 3 trillion rubles obtained from cheaper repo operations in March, the largest amount since December.
Banks are being starved of rubles as Russians pull deposits, according to OAO Sberbank, the country’s biggest lender. The withdrawals have been spurred by President Vladimir Putin’s annexation of Ukraine’s Crimea region, which triggered sanctions by the U.S. and allies, roiling investor sentiment toward the world’s top energy exporter.
“A new liquidity shock is entirely possible, if the situation in Ukraine develops in a negative way,” Dmitry Dorofeev, a money manager at BCS Financial Group in Moscow, said in e-mailed comments. “With repo collateral almost used up the banks now have to resort to more expensive swaps.”
The central bank placed 3.01 trillion of rubles with banks for one week at 7 percent on April 8 in a repo auction using ruble-denominated assets as collateral. Its overnight swap facility costs banks 8 percent.
The MosPrime rate that commercial banks say they charge each other for overnight loans, reached 8.25 percent on March 31, the highest level in almost five years. It was at 8.03 percent on April 8.
“You can call it a done deal -- the cost of overnight money for banks is now 8 percent rather than 7 percent,” Vladimir Kolychev, chief economist for Russia at VTB Capital, said by phone from Moscow.
At the end of last year, 65 percent of lenders’ marketable assets was pledged for cheaper repo funding, the regulator said in a financial stability report.
“The peak has been reached” because the balance is held by foreign companies and banks that don’t require funding, Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow, said in e-mailed comments yesterday.
Retail clients withdrew 255 billion rubles from accounts and deposits at Sberbank in the first three months of the year, as the ruble fell 7.9 percent against the central bank’s target basket of dollars and euros. Sberbank holds almost 46 percent of all retail deposits in Russia, according to the lender’s data.
Russian residents, not including the government and banks, purchased $20 billion of foreign currency in the first quarter of this year, according to the central bank’s balance of payments estimate, published on its website yesterday. That compares with net sales of $300 million for the whole 2013 and is the record level since 2008, Maxim Korovin and Anton Nikitin, analysts at VTB Group’s investment arm, said in a research note today.
The central bank is “concerned” about the shortage of collateral at banks, chairman Elvira Nabiullina said at a bankers’ congress in Moscow last week.
At the same time, money-market interest rates stayed within the central bank’s 6 percent to 8 percent target corridor in March and exceeded it “insignificantly” at the end of the month, she said.
Stress-tests applying “very conservative assumptions” showed the majority of banks have enough liquidity to cover possible outflows, Nabiullina said.
While the situation with liquidity is “tense,” it can only be considered “out of control when all money market rates are firmly outside the corridor,” ING’s Polevoy said.
The yield on Russia’s benchmark ruble bonds due in February 2027 was unchanged at 8.96 percent as of 5:30 p.m. in Moscow after falling seven basis points yesterday as the Finance Ministry scrapped another debt auction, the fifth cancellation in six weeks. The yield premium investors demand to hold Russia’s dollar bonds over Treasuries fell four basis points, or 0.04 percentage point, to 276, according to JPMorgan Chase & Co. indexes.
The central bank has spent $42 billion to slow the ruble’s decline since the beginning of the year as Russians converted their rubles into foreign currency deposits or cash.
“If we don’t soon see a reversal strong enough to make the central bank change the direction of its interventions, then the swap will be used systematically,” VTB’s Kolychev said. “Not as an instrument to cover the occasional funding gap, but as a fully-fledged instrument for everyday use.”
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