The Central Bank identified the vulnerabilities of the financial sector - Kommersant
The Bank of Russia has identified five new vulnerabilities in the financial sector, follows from the published review financial stability. Among them: further restriction of access to the payment infrastructure in "toxic" currencies, the growth of citizens' savings in foreign instruments, imbalances in the residential real estate market and the risks of project financing, interest rate risks of banks against the backdrop of an increase in public debt. The vulnerabilities of the non-financial sector of the Central Bank include the exposure of companies to sanctions pressure, as well as the withdrawal of foreign investors from Russian assets.
The Financial Stability Review is published by the Central Bank twice a year. Vulnerability, as the Central Bank explains, “reflects accumulated imbalances in the economy, may increase the likelihood of a shock, and as a result of a shock, it can lead to systemic failures.”
Commenting on the first vulnerability, the Bank of Russia notes the continued deterioration of the situation with settlements and correspondent relations in “toxic” currencies against the backdrop of the expansion of sanctions and pressure on the “subsidiaries” of foreign banks operating in the Russian Federation. At the same time, against the background of the departure of non-residents fixed "a significant reduction in the open position on currency swaps in the "toxic" currency."
The second concerns the fixed growth of citizens' savings in foreign instruments. In 2022, the volume of transfers of citizens to their accounts in foreign banks and brokers increased significantly. According to the Central Bank’s calculations, at the beginning of April 2023, the level of such savings is 19.2% (an increase of 4.1 percentage points since the beginning of 2022).
Such transfers are often used to pay for travel expenses abroad and to pay for the import of goods and services, "however, the remainder reflects the upward trend in citizens' savings in foreign instruments." According to the Central Bank, "this carries risks for citizens, the banking sector (reducing their liabilities) and the economy as a whole (in the form of higher borrowing costs)." In the case of unfriendly countries, the benefits of such portfolio diversification may be offset by uncontrolled sanctions risks, the regulator warns. The restriction for Russians from foreign financial institutions, which has already taken place in practice, may expand, the Central Bank believes.
As for the growth in the debt burden, the Bank of Russia notes the increased risk appetite of banks for unsecured lending in the fourth quarter of 2022, the adaptation of banks to the new regulatory tool (they must comply with a limited share of issuing risky loans - the so-called macroprudential limits), as well as steady growth unsecured lending. However, the quality of the loan portfolio is stable: over the quarter, the share of overdue over 90 days did not change - 8.7%.
The last two vulnerabilities are related to the housing market and interest rate risk. The Central Bank notes that at the end of 2022 on the websites of banks appeared proposals to reduce the interest rate on mortgages not by inflating the cost of housing, but by making a one-time payment. According to the Central Bank, this practice carries risks for the borrower. In addition, the growth in housing construction lending increases the vulnerability of banks in the event of a correction in real estate prices.
The Central Bank also believes that the vulnerability of banks to interest rate risk exceeds the pre-crisis level: the share of short-term liabilities remains above the levels of the beginning of 2022. “In the context of temporary regulatory easing on liquidity standards, banks are primarily seeking to increase lending, rather than restore the liquidity buffer,” the review states. The Central Bank intends to assess how large banks manage interest rate risk, and promises to develop new approaches to managing liquidity risk.