The Bank of Russia assessed the results of devaluation after the crisis year

In 2022, Russian banks significantly reduced lendingin dollars and euros, and also "cleared" the portfolio of foreign currency deposits. But a complete rejection of the dollar and the euro is impossible, and the transition to the yuan creates new risks,

During the crisis year of 2022, the share of the dollar in the corporate loan portfolio of Russian banks decreased from 9% to 6%, the Bank of Russia reported (.pdf). The share of loans in euros fell by half over the same period, to 3%.

For the first time, the regulator disclosed the change in the currency structure of loans to companies after the crisis began, but provided data only for residents. According to the statistics of the Central Bank, as of January 1, 2023, the total corporate loan portfolio of banks amounted to 58.68 trillion rubles. Data on what share of loans now fall on Russian borrowers, and what share - on foreigners, is not yet available. As of January 1, 2022, loans to non-resident legal entities accounted for 12.5% ​​of the corporate portfolio of banks, or 5.66 trillion rubles, all of which were in foreign currency.

As the Central Bank notes, after the crisis began, the volume of foreign currency loans to Russian companies has significantly decreased, while the share of the yuan has sharply increased. In the last months of last year, more than half of new foreign currency loans were issued in yuan, but on average in 2022, more than 80% of corporate loans were issued in rubles. According to the regulator's statistics, last year Russian banks approved foreign currency loans for 7.65 trillion rubles to resident companies. against 8.57 trillion rubles. in 2021

“Clients prefer ruble lending, which replaces borrowings in foreign markets and foreign currency loans previously issued by Russian banks in US dollars and euros, while the share of the yuan in debt remains extremely low - about 1%,” the Bank of Russia said. The Central Bank cited other signs of the devaluation of the Russian economy and bank balance sheets at the end of last year, and also pointed to new risks of these processes.

What has changed after a year of crisis and sanctions

In 2022, after tightening sanctions, improving the export environment and shrinking imports, Russia's foreign assets began to grow much faster than liabilities. As a result, Russia's international investment position (the difference between assets and liabilities) exceeded $500 billion - this is the highest level since 2000, follows from the chart in the Central Bank review.

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According to the regulator, "unprecedented sanctions" led to a rapid and significant change in the structure of foreign trade in favor of friendly countries, and after that, the currency structure of payments for exports and imports. According to the Central Bank, at the end of 2022, the share of the ruble in export settlements exceeded 30%, equaling the share of the dollar and exceeding the share of the euro. Nevertheless, the weight of the dollar for exports and imports was still about 50%. This may indicate that settlement risks and asset blocking risks remain for Russian companies and their counterparties, the Central Bank believes.

“The currency of the payment often differs from the currency of the contract – the increase in the share of the yuan in payments speaks rather of the transfer of settlements under contracts into Chinese currency. At the same time, the currency of the contract itself remains the same. As a result, the currency risk of Russian companies may increase,” the regulator warns. The review provides two channels for realizing such a risk.

First, companies have currency risk against the yuan or other friendly currencies. Often such currencies are non-convertible or limited convertible, which increases their exchange rate volatility. In addition, there are far fewer derivative financial instruments (DFIs) in soft currencies on the market than derivatives in dollars or euros. And banks and companies use derivatives to hedge currency risks. This, according to the Central Bank, complicates Russia's transition to settlements in national currencies: the demand for the corresponding currency in the domestic market may not cover its supply, or vice versa.

Secondly, companies remain exposed to the risk of transactions with dollars, euros and other unfriendly currencies. The conversion of export settlements into non-toxic currencies does not mean a symmetrical change for imports: a number of counterparties require the use of the dollar and the euro to pay for goods imported into Russia.

“Thus, even when transferring settlements to the currencies of friendly countries, it will not be possible to completely avoid the risk of toxic currencies if the contract currency is largely US dollars or euros,” states the Central Bank.

Bank operations

As noted in the review, banks, following economic agents, have changed the insurance settlement structure. Credit organizations stopped correspondent relations with banks in unfriendly countries and began to open correspondent accounts in friendly ones. The Central Bank indicated that the currency structure of correspondent accounts of Russian players abroad changed over the year, but did not disclose detailed information.

Deposits

According to the chart in the review, the currencyization of Russians’ savings has not declined too much: if at the beginning of 2022 it was a little more than 24%, then by the end of the year it was 22%. However, this indicator takes into account not only foreign currency deposits of the population in Russian banks, but also foreign cash on hand, balances in banks abroad, investment in debt securities or shares in foreign currency, shares of mutual funds, as well as foreign currency balances on brokerage accounts. At the same time, bank deposits of citizens in foreign currency decreased by 40.7% over the year, falling to $55 billion, follows from the statistics of the Central Bank. A significant part of foreign currency savings was transferred to bank accounts abroad, RBC wrote: over the year, their balances more than doubled, to $ 64.5 billion.

The Central Bank fixes the flow of savings of the population in favor of the yuan, but the share of deposits in this currency is still significantly inferior to the dollar and the euro. The devaluation of the liabilities of the banking system is largely due to the growth of assets of the non-financial sector abroad, currency risks for the population and companies are largely preserved, the regulator states.

“In addition, the population and companies become exposed to risks associated with the stability of non-resident banks, the stability of a wide range of currencies and the actions of foreign regulators, and the ability of the Russian regulator to reduce these risks is very limited,” the review notes.

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