The Central Bank is bending its liquidity line

From March 2024, the largest banks will lose benefits under the short-term liquidity ratio (SLR). To ensure a smooth transition, the Central Bank is changing the conditions for providing them with irrevocable lines of credit (ICL). This should help level out competition between credit institutions and a smooth transition to the national short-term liquidity standard (planned to be introduced in 2026). According to experts, the new BCL mechanism will be more flexible, but in some cases it will cost banks more.

The Central Bank is canceling, from March 2024, the relaxations for systemically important credit institutions (SICs) for NCL below 100%, introduced due to the impact of sanctions and systemic stress in 2022. The measure has lost its relevance, “recently there has been a stabilization of the market and a steady trend towards an increase in funds in the accounts of both citizens (+ 17%, or 5.8 trillion rubles, over the last 12 months as of October 1) and companies (+ 13%, or 5.4 trillion rubles),” the regulator explained.

The abolition of relief is intended to level out competition between banks. “When using relaxations, SZKOs have the opportunity to increase their loan portfolio at a faster pace than banks that maintain the actual values ​​of the standards at the required level,” the regulator explained.

In addition, the Central Bank noted that when using relaxations, banks do not seek to attract long-term deposits at higher rates, but mainly attract cheaper short-term liabilities to increase their margins and profits. The cancellation of the relaxations will allow a smoother transition to compliance with the national short-term liquidity standard, which is planned to be introduced to replace the NKL (see Kommersant on August 23).

To make it easier to get out of the NKL relaxations, the regulator is returning the mechanism of irrevocable credit lines. However, the procedure for their provision will be significantly changed. The new BCL will not require preliminary collateral; it will have to be paid directly when claiming a loan within the line. In addition, banks will pay different interest depending on whether a loan is taken to increase the NCL to 80% (1.5% per annum) or from 80% to 100% (0.1% per annum).

The maximum size of the BCL will be gradually reduced so that banks ensure at their own expense the fulfillment of an increasingly larger share of the BCL – from 40% (from March 1, 2024) to 80% (from January 1, 2026). In this case, the amount will be calculated “based on the maximum possible BCL limit established by the bank and will be charged in advance, but not for the coming year, but for the upcoming quarter, for which the maximum possible BCL limit is set.”

Experts note that the new conditions for providing BCL will be more flexible for banks. As Valery Piven, head of the ACRA financial institutions ratings group, explained, the use of the BCL was due more to the lack of assets on the domestic market, which, according to Basel standards, can be classified as highly liquid, rather than to a real liquidity deficit. “The latter arose during certain periods of stress in the operating environment, which gave the Bank of Russia grounds to allow banks to violate the NCL while simultaneously releasing resources that, in practice, are liquid for the Russian market,” he says. At the same time, Mr. Piven clarifies that “under certain scenarios, the use of BCL will be more expensive for NWKOs.”

Managing Director of Expert RA Yuri Belikov believes that the differentiation of rates depending on the standard, the absence of a requirement for collateral if the limit is not selected, and so on are “an obvious softening of conditions.” At the same time, he notes that the wording “return of the BCL” in the Central Bank’s message reflects the fact that it will be possible to open new lines. From December 12, 2022, the opening of new BCLs was suspended, but SZKOs retained the previously approved limits, as well as the possibility of actually withdrawing funds from them.

Maxim Builov