Financial Markets: Increasing Complexity, Maintaining Stability

3–5 July 2019, ST. PETERSBURG

    AccordingtoDeputyGovernorMikhailSukhov, the increase in payments into the Mandatory Reserve Fund will not affect profitability of the banking sector

    ST. PETERSBURG, June, 30. /TASS/. TheCentralBankbelievesthisyearwillseea bill on bank financial rehabilitation through bail-in, Bank of Russia Deputy Governor Mikhail Sukhov told journalists on the sidelines of the International Financial Congress.

    "We have worked with the Ministry of Finance on the bill (on financial rehabilitation of banks through the bail-in mechanism - Ed.). We believe the draft law will appear this year," Sukhov said, noting that the departments did not expect the law to be passed this year.

    Sukhovwentontosaythat the banks have sufficient liquidity to pay the raised contributions to the Mandatory Reserve Fund (MRF).

    "Yes. The banks have sufficient liquidity to pay the raised contributions to the MRF," he said.

    According to the Central Bank and banks themselves, they will need in the order of RUB 300–450 billion for this purpose.

    Sukhov also stated that the increase in contributions to the Mandatory Reserve Fund would not affect the profitability of the banking sector.

    "The increase in the MRF will not have any material impact of the profitability of the banking sector. The increase will be either 1% or less of the forecast level. The Central Bank will not change its profit forecasts (for the banking sector - Ed.)," he said.

    The profits of the RF banking sector in 2015 amounted to RUB 192 billion; the Central Bank forecast for 2016 is RUB 500 billion and the actual figures for January through May this year was RUB 234 billion.

    Increased standards

    OnAugust 1, 2016, theBankofRussiapassedadecisiontoraiseby 0.75% thelevels for mandatory reserves against the liabilities of credit institutions in roubles and foreign currency. The Bank of Russia believes this measure will allow the liquidity inflow connected with financing the federal budget deficit to be partially absorbed by the reserve fund and will act as an anti-incentive to the rise in currency obligations within the structure of credit institution liabilities.

    This is already the second time the Central Bank has decided to raise bank contributions to the MRF. From July,1 2016, theregulatorraisedby 1% thelevelsformandatoryreservesagainsttheliabilitiesofcreditinstitutionsinforeigncurrency, increasing the legal reserve requirements towards non-resident legal entities inforeign currency to 6.25%, towards individuals to 5.25%, and on other foreign currency liabilities to 6.25%.