Liquidity in Russian banking sector recovers

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/24

Poor economic performance, fluctuations in the ruble’s exchange rate, the drop in foreign financing and increase in household savings rate have affected the banking sector in multiple ways. Measured in nominal terms, bank loan portfolios grew just 8 % in 2015 and contracted by 4 % in the first four months of this year. About 30 % of bank lending is denominated in foreign currencies. Adjusting for shifts in exchange rates, bank loan portfolios have seen no growth for over a year. Especially lending to households has fallen dramatically.

Households have responded to economic uncertainty by saving more. Adjusting for exchange rate shifts, households increased their bank deposits 17 % last year and another 1 % in the first months of this year. Deposits by households and corporations now account for 60 % of total banking sector liabilities. With growth in domestic deposits, borrowing from the central bank has fallen sharply. At its peak in early 2015, CBR funding accounted for nearly 12 % of banking sector liabilities, but as of April that share had fallen below 4 %.

Even with bank profits affected by hikes in loan-loss reserves and reduced lending, banking sector liquidity improved this spring and interbank overnight rates trended below the CBR key rate. The CBR is monitoring the situation and prepared to intervene as needed. The minimum reserve requirement for forex deposits rises to 6.25 % on July 1.

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