Russia to Halt One-Year Dollar Facility as Debt Repayments Wane

  • Loans were introduced as an emergency backstop in 2014
  • Nine out of 12 one-year repos voided on low demand this year

The Bank of Russia suspended a program set up more than a year ago to help companies meet external debt payments under sanctions as their repayment schedules ease.

The central bank will halt auctions of 12-month foreign-currency repurchase agreements from April 1 after demand for the facility waned, according to a statement on its website. Policy makers will keep offering one-week and four-week dollar funding while monitoring demand and conditions on foreign-exchange markets to decide on limits, it said.

Governor Elvira Nabiullina started the facility in November 2014 as a backstop for companies trying to service their debts as U.S. and European Union sanctions shuttered overseas capital markets. Corporate borrowers in Russia have $27 billion rubles of debt coming due in the second quarter, down from $41 billion in last three months of 2015, according to central bank data.

“This is a good sign, it means the system is getting healthy,” Natalia Orlova, the chief economist at Alfa Bank in Moscow, said of the auction cancellation.

The Bank of Russia first suspended the one-year repo facility in May in response to a decline in debt repayments and a rebound in the ruble, only to reintroduce it in December as conditions worsened. Since then, the currency has rebounded with oil.

While commercial banks still owe $5.6 billion to the central bank in 12-month loans, nine of the 12 repurchase auctions held this year were voided due to a lack of bids.

The longer-term repos became too expensive for banks, and lenders can save money by rolling over the regulator’s four-week facility, said Dmitry Polevoy, said senior economist for Russia at ING Groep NV in Moscow.

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