Banks have fixed rates
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The Bank of Russia dramatically increased the monthly repo limit: from 100 billion to 1.5 trillion rubles, and almost all of the funds proposed by the regulator turned out to be selected – 1.4 trillion rubles. The volume of the repo auction for the first time since the beginning of 2021 exceeded 1 trillion rubles. and set an absolute record for the entire history of such placements for a month. Experts note that, in contrast to the situation two years ago, when such auctions had just appeared and one of the main demand factors was borrowing from the Ministry of Finance, today the instability of the resource base of banks plays a big role.
On November 7, the Bank of Russia held a monthly repo auction (a deal on the sale of securities with an obligation to repurchase). At the same time, the Central Bank increased the limit from the usual 100 billion to 1.5 trillion rubles. under 7.6%. And almost the entire proposed amount was selected – the banks took 1.39 trillion rubles. at a minimum offered rate of 7.6%. The last time similar volumes were observed at a monthly repo auction was in January last year, when the Central Bank placed 1.1 trillion rubles.
Monthly repo auctions were introduced by the Central Bank in May 2020, but until October of the same year they were not popular – not a single one took place. In October 2020, for the first time, the Central Bank placed 600 billion rubles at such an auction, and in November – 1.2 trillion rubles.
As the Bank of Russia explained to Kommersant, the increase in the limit is aimed at smoothing out temporary imbalances in the maturity of assets and liabilities of credit institutions (COs) in the face of a decrease in the structural liquidity surplus and a reduction in the maturity of liabilities. “One of the factors is the seasonal unevenness in the execution of budget expenditures at the end of the year in relation to the borrowing rates of the Ministry of Finance,” the Central Bank specified. “We believe that the demand for these operations will decrease again as soon as liquidity returns from the budget to the banking sector as spending, as happened in early 2021.”
In late 2020 and early 2021, strong demand at monthly repo auctions was driven largely by massive borrowing by the Finance Ministry involving Russian banks. Now the ministry is also placing large volumes of OFZs, but they are far from record highs. So, last week the ministry placed OFZ for 167 billion rubles, and a week earlier – for another 177.6 billion rubles. (see “Kommersant” dated November 2). Analysts expect that by the end of the year the Ministry of Finance will borrow another 400-600 billion rubles.
According to the Bank of Russia, the borrowings of the Ministry of Finance, in contrast to the situation two years ago, are only one of the factors of increased demand for funds. According to one of the banking analysts, a much larger role in increasing the monthly auction limit is played by the need to reduce the turnover of weekly auctions and thereby reduce the risks of banks. “Monthly repos are long-term resources with less pressure on liquidity,” the Central Bank added.
In general, at the beginning of the day on November 7, according to the Central Bank, the banking sector continued to be in a state of liquidity surplus – more than 1 trillion rubles. Yury Belikov, Managing Director of Expert RA, suggests that the banks probably took advantage of the monthly refinancing offer from the Bank of Russia in large volumes, taking into account two factors. The first, in his opinion, is the increased volatility of client funds in recent years and their high sensitivity to the information background.
1.39 trillion rubles
placed the Central Bank as part of a monthly repo auction at a minimum offered rate of 7.6% on November 7, 2022
“The formal excess of liquidity is often provided by the impossibility of placing funds in medium-term profitable assets due to instability and reduced predictability of funding, especially for small and medium-sized banks,” says Mr. Belikov. He believes that the second factor is the desire of banks to fix the cost of a certain part of the resource base for at least a month in the presence of pronounced pro-inflationary signs that may lead to an increase in the key rate.
Anna Avakimyan, chief analyst at RegBlock consulting company, notes that the expansion of the liquidity supply is associated with risk relief in a situation where interest rates are low on the market, but the cost of risk on loans increases many times over. “As a result, the population and corporations prefer liquidity and are not inclined to expand the deposit base, and the banks need additional refinancing,” she says. In this situation, according to her, the priority task for credit institutions is to maintain a narrow, but positive margin.
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