OAO Sberbank, Russia’s biggest lender, urged the central bank to provide more funding to financial institutions to help lower the highest interbank rates in three years.
The MosPrime rate banks say they charge to lend to each other in rubles for three months has climbed 85 basis points from this year’s low in April to 7.5 percent today, the highest since December 2009. That compares with a decline of 4.5 percentage points in Turkey’s interbank offered rate.
“Russia’s banking sector is clearly experiencing a liquidity shortfall,” Sberbank Chief Executive Officer German Gref told reporters in Istanbul yesterday. “In my view, the ways to present liquidity need to be changed. New instruments are needed.”
Russia’s banks are searching for ways to finance a 40 percent surge in consumer credit this year as deposit growth slows while the government keeps money out of the economy by running a budget surplus. Soaring interbank rates are pushing lenders to seek more central bank funds after their borrowings through repurchase auctions quadrupled this year to 1.9 trillion rubles ($61 billion), according to ZAO Raiffeisenbank.
Gref’s comments echo Andrei Kostin, head of VTB Group, the country’s second-largest lender, who said at a Moscow conference in April that Russia should follow the European Central Bank’s example by providing three-year loans to banks.
The yield on VTB’s ruble bonds due in March 2015 has increased 35 basis points, or 0.35 percentage point, since the sale this year to 8.68 percent today. That compares with a drop of 59 basis points in the yield of similar-maturity government debt.
The central bank currently offers funds through repurchasing agreements ranging from terms of overnight to one year. New ways to provide liquidity are needed amid capital outflows, Gref said. Outflows reached $61 billion in the first 10 months, Sergey Ignatiev, central bank chairman, said Nov. 21.
The Finance Ministry is proposing to include securities with ratings from national ratings agencies -- not just Moody’s Investor’s Service, Fitch Ratings or Standard & Poor’s -- in the Lombard list of bonds and shares that can be used for loans, the Interfax news service reported yesterday, citing a ministry letter to the government.
“The list needs to be expanded,” Gref said. “The range is very broad.”
Lending to households is “significantly” outpacing lending to the banking sector, Sberbank Deputy CEO Bella Zlatkis told a forum in London on Nov. 28. Growth in household deposits slowed to 1.7 percent in the third quarter from 3.8 percent a year earlier, according to the Deposit Insurance Agency.
The combination of declining growth and retail lending at growth rates of 40 percent “lead to a more challenging financing picture for banks and hence tighter liquidity,” Ivan Tchakarov, chief economist with Moscow-based Renaissance Capital, said in e-mailed comments yesterday.
The ruble rallied 1.5 percent against the dollar in November. It weakened 0.3 percent to 30.97 per dollar as of 12:05 p.m. in Moscow. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 31.4261 per dollar in three months.
The yield on Russia’s dollar bonds due in April 2020 was little changed at 2.455 percent. The yield on domestically traded ruble-denominated government bonds due in June 2017 was unchanged at 6.64 percent. Russia’s international ruble bond due in March 2018 rose, lowering the yield four basis points to 5.85 percent.
Russia is rated BBB by Fitch Ratings, the second-lowest investment-grade ranking. The extra yield investors demand to hold Russian government dollar bonds rather than U.S. Treasuries rose two basis points to 191, according to JPMorgan Chase & Co. indexes. The difference compares with 170 basis points for debt of similarly rated Mexico and 154 basis points for Brazil.
The cost of protecting Russian debt against non-payment for five years using credit-default swaps rose one basis point to 135 according to data compiled by Bloomberg. The default swaps cost five basis points more than Turkey, which is rated one level lower at BBB- by Fitch. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Urals crude, Russia’s chief export earner, has averaged $110.44 a barrel this year, according to data compiled by Bloomberg. That helped the government run a federal budget surplus equivalent to 1.4 percent of gross domestic product in the first 10 months, Finance Ministry data show.
The government is unlikely to spend its surplus until the last working week of the year, Maria Pomelnikova, an analyst at Moscow-based Raiffeisenbank, said e-mailed response to questions yesterday. Liquidity may be drained further as cash is taken out in the run-up to the week-long New Year’s holidays in January, by purchases of government bonds and the repayment of 332 billion rubles of Treasury deposits, according to the analyst.
“We do not expect significant downward correction of short-term interest rates in coming weeks,” Pomelnikova said.