Deposits must basically be in the Russian Federation

The Bank of Russia did not support the initiative to allow banks with a basic license to place funds on deposits abroad. This opportunity would allow credit institutions to more effectively manage liquidity when organizing international payments. However, the Central Bank sees too many risks in such a practice.

The Association of Banks of Russia (ADB) wants to ensure that banks with a basic license are given the right to place funds on deposit in foreign banks, ADB Vice President Alexey Voylukov told Kommersant. The association intends to address this issue to the government and again to the Central Bank, which on April 5 announced on its website that it does not support the initiative. The Central Bank did not promptly answer Kommersant’s questions.

The ADB proposed making relief for banks that have correspondent relationships with credit institutions in other countries. According to the Central Bank, by the end of 2023, about 30 banks took advantage of the temporary right to open correspondent accounts. From the beginning of 2024 it became permanent. The regulator explained the permission to open correspondent accounts by saying that “in the context of the introduction of sanctions restrictions on large banks, this will give banks with a basic license the opportunity to service foreign trade transactions and carry out cross-border transfers.”

As Mr. Voylukov explained, the ability to place available funds on deposits in foreign banks is necessary to compensate for the costs of servicing correspondent accounts and improve liquidity management.

According to him, the service costs for such banks are “materially tangible,” and in the face of delays in payments, they are forced to maintain a large reserve of balances. Income from deposits (even for short periods) could compensate for part of the costs and make it possible to freely redistribute funds between accounts.

Experts clarify that banks are also capable of making money in Russia. As Yuri Belikov, managing director of the Expert RA rating agency, explains, “at current rates, banks can profitably place temporarily free liquidity in deposits with the Central Bank (15% per annum.— “Kommersant”), into reverse repo through a central counterparty (15.6% per annum.— “Kommersant”) and, if desired, into internal blank interbank lending (15.7% per annum.— “Kommersant”) and have a decent margin from these operations.”

According to the head of the board of directors of Pervouralskbank, Mikhail Bryukhanov, the fee for maintaining correspondent relations consists of a monthly fixed payment, which can amount to 0.15–1.8 million rubles. per year depending on the country and bank, as well as negotiable payments (for processing payment orders, requests). “The fixed payment can be reduced to zero while maintaining a minimum liquidity balance on the correspondent account, and interest can also be paid on the balance,” adds Mr. Bryukhanov.

According to the regulator, the possibility of placing funds on deposits abroad is a significant risk for small banks. In particular, as explained in the decision of the Central Bank, granting Russian banks the right to lend to foreign partners “may entail risks for their financial stability and the emergence of various types of asset withdrawal schemes.”

The ADB does not agree with this: “The risk of withdrawing assets under such a scheme is that it is also inherent in universal large banks, which have the right to carry out such operations now.” In addition, according to Yuri Belikov, the withdrawal of assets through interbank loans is “not a common practice.” It is much easier to disguise it with third-party lending, which “is less transparent by default,” the expert believes. According to Mr. Belikov, in reality, behind the position of the Central Bank is “the lack of real reasons to change the legislation in this part, as well as more practical concerns that non-resident banks may at some point unilaterally stop operations, fearing secondary sanctions.”

Olga Sherunkova