Corporate loans are converted from unfriendly currencies

Russian companies are actively converting loans issued to legal entities from unfriendly currencies. At the same time, businesses choose between the yuan and the ruble, focusing primarily on the level of rates. As a result, according to Central Bank statistics, in July alone, the portfolio of loans in friendly currencies showed an increase of almost 30% in yuan terms. But banks currently prefer to devaluate their balance sheets altogether, experts say.

At the end of July 2023, the total foreign currency portfolio of loans to companies and individual entrepreneurs denominated in non-toxic currencies reached 2.7 trillion rubles, according to Central Bank data. Over the month, the portfolio volume in yuan terms increased by 29.4%, to CNY 210.1 billion. At the same time, the majority of this portfolio falls on Sberbank. As stated in an interview “Interfax” Deputy Chairman of the bank Anatoly Popov, currently it is about 90 billion CNY. At the same time, according to the Central Bank, the portfolio of loans in toxic currencies (primarily dollars and euros) decreased by 3%, to 8.0 trillion rubles.

In dollar terms, the decrease was 6.4%, to $87.5 billion.

Most of the loans issued by banks in the currencies of friendly countries are denominated in yuan, notes Natalya Vashchelyuk, chief analyst at Sovcombank. For example, according to the Central Bank, in the second quarter yuan accounted for 70% of foreign currency loans issued. According to the expert, “China monitors the volume of yuan held outside the Chinese financial system (offshore yuan) and strives to maintain a balance between the inflow and outflow of funds.”

At the same time, the assets of Russian subsidiaries of Chinese banks are growing steadily, but the policy “remains quite conservative,” notes Natalya Vashchelyuk. In particular, the two largest Chinese banks in Russia – Bank of China and ICBC Bank – saw their assets increase four to five times from the beginning of 2022 to mid-2023 (see “Kommersant” dated August 14). Therefore, according to Ms. Vashchelyuk, Russian banks will have opportunities to support import operations and transactions with Chinese companies. However, it will probably be difficult for Russian banks to obtain funds for other purposes that are not related to transactions with Chinese counterparties and do not involve the “return” of yuan to China, she believes.

Previously, the Central Bank estimated that $4.5 billion of loans in unfriendly currencies were transferred into Chinese currency in July, as a result of which the share of yuan loans increased by 3 percentage points, to 20%. Based on such data, it can be assumed that the share of new yuan lending is still small, and we are primarily talking about a change in the currency of loans, which is confirmed by experts. First Deputy Chairman of the Board of VTB Dmitry Pyanov said last week that in July the bank’s contribution to this volume of yuan conversion was about €1 billion. According to the Central Bank, the reserve of foreign exchange liquidity of the banking system ($49 billion at the end of July) is “at an adequate level.” Although it is decreasing somewhat: for example, the reserve, according to the latest data, in July covered 50% of customer funds and 27% of foreign currency obligations against 54% and 29%, respectively, in June.

As Vladimir Kozinets, president of the Association of Corporate Treasurers, notes, “the need for foreign currency loans denominated in unfriendly currencies is significantly reduced.” The head of the Sberbank financial analytics center, Mikhail Matovnikov, points out that the only issue that is being discussed is the issue of conversion into yuan or ruble.

Converting a loan into another currency is usually relevant for loans with an approaching maturity date. At the same time, the vast majority of companies look at the loan rate in anticipation of savings.

“However, the interest rate on a foreign currency loan gives a certain illusion of savings. For three to five year loan terms, the entire rate differential (the difference between the interest rates of two different currencies.— “Kommersant”) is covered by the depreciation of the ruble,” notes Mr. Matovnikov.

Therefore, at present, the trend of devaluation of the balance sheet dominates the trend of yuanization. In the banking system, foreign currency assets exceed foreign currency liabilities, and in general, it would be best for banks to quickly convert foreign currency loans into rubles, fund them with existing rubles, and not with foreign currency liabilities quickly leaving the market, Mr. Matovnikov concluded.

Olga Sherunkova