Elvira Nabiullina: ‘Banks fine-tuned procedures and began to consider applications faster’
The chairwoman of the Central Bank forecasted a peak of growth in overdue payments in late 2020 — early 2021
“Coronavirus” restrictions in the economy couldn’t help but influence the circulation of money flows in the Russian financial system because of which the banking sector felt some fall in liquidity surplus. Chairwoman of the Bank of Russia Elvira Nabiullina explained how the CB was going to correct the balance of ruble liquidity for banks, when to expect the peak of overdue loans and if the CB maintained room for manoeuvre to lower the key rate by 100 basis points at a traditional online briefing at 8 May.
How to inject money in banking system
Evaluation of the liquidity level of the banking sector became one of the key topics of the CB chairwoman’s briefing on 8 May. Even though the system has enough money at the moment and the surplus is still comfortable for the financial system’s operation, the CB is tuned up for “a fine adjustment” in May-June — the next REPO auctions, which will allow banks to obtain “long money”. This means if they are granted loans with federal loan bonds and public bonds as security, banks will start purchasing them back. The latest REPO auction was held on Wednesday, banks got about 800 billion rubles there. The CB chairwoman explained why this was necessary:
“I want to talk about the liquidity of the banking sector in detail today. This issue concerns many now because the surplus has notably reduced since the beginning of the year — from 2,8 trillion rubles earlier this year to 1,4 trillion rubles.”
Why demand for cash rose
The CB chairwoman named three obvious reasons that led to a reduction in liquidity surplus. Each of them is temporary.
Firstly — it is higher demand for cash. In Nabiullina’s opinion, the demand rose because of the indefinite terms of self-isolation, this is why many citizens preferred to stock up on cash. At the same time, banks themselves saw bigger growth in demand for cash rubles and preferred to meet this higher demand. “We expect that a big part of this amount of cash rubles will go back to banks as restrictive measures will gradually be lifted,” forecasts the head of the regulator.
Second reason: the non-working days changed the traditional schedule of incoming payments and withdrawal of corporate clients' money. “In these conditions, it is becoming harder for banks to forecast liquidity flows, and many of them prefer to keep up the liquidity buffer on corporate accounts and not to place it in the money market,” the head of the CB explained.
And third reason — less urgency of borrowed money. According to the CB chairwoman, long-term loans are increasing, while the main share of deposits is for up to a year. “The tendency has increased in the last months because companies and the Federal Treasury have begun to place their deposits in banks for shorter terms. The imbalance can get worse because banks provide citizens and businesses loan holidays,” Nabiullina warned.
Operations of “fine adjustment”
The head of the CB said that at the moment the first REPO was planned to be held in late May, while the annual REPO auction would be in late June. Federal loan bonds and bonds of regions of the Russian Federation and municipalities with the highest credit rating at national level. The annual REPO rate will be flexible — it changes after the key rate.
“So these operations won’t influence interest rates in the economy, the Central Bank will keep a chance to pursue its operational goal to lead the money market rate to the key rate. All this will provide normal operation of the money market without distorting actions of market mechanisms,” Nabiullina explained.
As the pandemic is developing, the Bank of Russia considers the key rate might reduce by 100 basis points at the next session of the board of directors in summer. “At the last session of the board of directions, we considering lowering the rate by 100 basis points. I assume that if the situation is developing like now, we will also consider the option of reduction by 100 basis points among other alternatives, undoubtedly,” she confirmed and noted and “the CB had room for manoeuvre”.
Banks adjusted procedures and began to provide loan holidays faster
Chairwoman of the Bank of Russia Elvira Nabiullina explained how the banking system was handling an obligation to help businesses and individual borrowers it was burdened with. She said that borrowers had already submitted 1,4 million applications to restructure loans. The mortgage has the highest approval rate (80%), car loans have the lowest (20%). Moreover, the retail loan portfolio in April reduced by 0,6%. “On the one hand, banks probably began to grant new loans more carefully to avoid a rise in losses in the future. On the other hand, people can take out them more reluctantly because of the uncertainty about the stability of their incomes”.
SMEs have restructured loans at 343 billion rubles. There have been received about 94,000 applications. “At the same time we see that banks fine-tuned procedures and began to consider incoming applications faster,” Nabiullina noted. The head of the CB is sure that loan holidays are effective to save borrowers’ solvency.
“Of course, the future can’t be predicted, but I want to provide interesting numbers. 76% of borrowers who completed the holidays managed to return to the payment schedule (last summer holidays). This means the mechanism of a break for citizens really works, it doesn’t create “bad debts”, on the contrary, it prevents them,” she commented. Answering journalists’ question about when the growth peak of overdue debt should be expected, she assumed it would be in late 2020-early 2021.
50 billion rubles for large businesses’ salaries
Nabiullina confirmed the government’s plans to expand the programme of salary loans at a zero rate. According to her, 50 billion rubles additionally will be added to the previously fixed limit of 150 billion for SMEs. There have been submitted applications at 94 billion at the moment.
But this additional money will be aimed to pay salaries to workers of large enterprises. “As of 8 May, 20 banks already actively participate in the programme, according to the Ministry of Economy. In the last two weeks, the amount of loan agreements signed has doubled, the sum of approved applications (already 20,000) has reached 46 billion rubles. It isn’t bad numbers,” the CB chairwoman concluded.