Russian banks have sharply reduced lending to each other amid sanctions

The volume of interbank lending fell by 27.2% compared to the pre-crisis level, follows from the statistics of the Central Bank. Market participants have revised the limits on each other and no longer lend in foreign currency,

In April, the volume of loans issued by Russian banks to each other showed the sharpest decline in four years: over the month it fell by 14%, or by 1.43 trillion rubles, follows from the data of the Bank of RUSSIA.

As of May 1, the balances on the accounts where interbank loans are reflected reached 8.77 trillion rubles. — this is comparable to the levels of the beginning of 2020. The volume of mutual lending in the banking sector has been declining for the third month in a row: in February, the reduction was symbolic (minus 610 billion rubles, or 5.1%), and in March it increased (minus 1.23 trillion rubles, or 10.7% ). For comparison: on February 1, before the start of the Russian military operation in Ukraine and the introduction of tough Western sanctions, the volume of interbank loans (IBK) exceeded 12.43 trillion rubles. Thus, over the three crisis months, the Russian interbank market shrank by 27.2%, or by 3.65 trillion rubles.

Why Russian banks began to lend less to each other

“The decrease in the volume of interbank loans could have occurred due to two factors - the currency revaluation of a fairly significant share of foreign currency loans due to the strengthening of the ruble, and also due to a direct decrease in foreign currency lending, since some banks cannot conduct currency transactions due to restrictions. But it is impossible to assess the degree of influence of each of the factors,” says Egor Susin, Managing DIRECTOR of Gazprombank Private Banking. Since March 1, due to Western sanctions, the Central Bank has classified standard bank reporting forms and reduced statistics for the sector as a whole.

As follows from the data as of February 1, about a third of interbank loans at that time were in foreign currency - 4.2 trillion rubles, or $53.9 billion. RBC's interlocutors in large credit institutions claim that the mutual lending market shrank in March-April in many ways due to the fact that the players stopped lending to each other in foreign currency.

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Foreign currency interbank loans have virtually disappeared, says a source at a systemically important bank: “Banks did not issue loans to both foreign and Russian banks due to fears that payments might not go through, could be blocked at any time, or an issued loan might not be returned for some reason. imposition of sanctions or due to compliance procedures on the side of Western correspondent banks.” There was a division of players into those who had already fallen under tough blocking sanctions , and who did not, as a result, for some time, "a policy was developed for further work with each other," RBC's interlocutor continues. According to him, the mutual lending of banks in rubles also fell, and not only because of the increased risks in the market, but also because of technical problems.

“There was a shutdown of [exchange terminals] BLOOMBERG and REUTERS, which are the main channels for concluding interbank transactions, and many banks did not have agreements to confirm transactions through the SPFS channel (Financial Message Transfer System, the Russian analogue of SWIFT. -), so at the end March - early April, for some period, the interbank market actually froze: banks were preparing the infrastructure to replace the departed Bloomberg, Reuters and partially SWIFT, ”a RBC source notes.

DOW JONES stopped supplying Russian banks with sanctions data

Which of the Russian banks was under tough sanctions

Under the most stringent, blocking US restrictions (SDN list) in the first wave, on February 21 (when Russia recognized the independence of the DPR and LPR), the defense Promsvyazbank, the state corporation VEB.RF and their subsidiaries fell. On February 24, with the start of the military operation, similar sanctions were imposed against VTB, Otkritie Bank, Sovcombank, Novikombank. Sberbank was subject to restrictions related to correspondent accounts, but on April 6 it also ended up on the SDN list.

Alfa-Bank, Rossiya Bank, SMP-Bank, Transcapitalbank, Investtorbank, Moscow Industrial Bank, Far Eastern Bank are also under blocking US sanctions.

“SDN banks have naturally curtailed interbank loans in foreign currency,” says a RBC source in another systemically important bank. In the ruble segment of lending, according to him, activity fell by about 30%. “Under conditions of stress and economic uncertainty, counterparties are reducing limits on each other, and the market is becoming more stratified. Over time, the activity grows again,” he explains.

“Market participants, in the face of uncertainty in the economy, revised the lines and limits set on the interbank market. Someone did it in February, and others a little later - in early March, ”confirms the director of the investment and trading department of Absolut Bank Sergey Mikhailov. According to him, Absolut Bank also adjusted the limits for some counterparties.

“Foreign currency lending declined primarily against the backdrop of sanctions risks,” agrees Sergey Kozelkov, First Vice President of Rosbank’s Corporate Business Directorate. Interbank loans, he said, also decreased in the spring due to the high level of the Central Bank's key rate and "the lack of need for ruble liquidity among banking market participants."

“In principle, banks have enough rubles due to the large increase in deposits and deposits from corporate clients, so the demand for liquidity in the domestic market could fall,” Susin notes.

In general, the volume of interbank loans and deposits of banks in the Central Bank as of May 1 was at the same level as at the beginning of last year, says Yury Belikov, Managing Director of the Validation Department of Expert RA. “It's just that in March, banks needed to accumulate a very large cushion of liquidity (if possible) in order to be ready for new outflows, since there could be another outbreak of customer panic. In addition, there was nowhere to place liquidity, except in the deposits of the Central Bank, and this was enough, taking into account peak rates, ”the analyst comments.

Does the contraction of interbank lending pose risks to the sector

The decline in mutual lending does not carry systemic risks, Susin said: “It is rather an illustration of the fact that banks had sufficient liquidity inflows. Liabilities have grown, while lending has slowed down, which creates a certain liquidity surplus.”

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According to Belikov, liquidity volumes in the sector as a whole remain “forcedly redundant”. “And because of the insufficient stability of the resource base, and because of the lack of quality borrowers,” the analyst notes, although he stipulates that the situation is gradually improving and banks have the opportunity to “partially utilize excess liquidity.”

“Now there are more deals on the market than in March-April. The limits of banks on each other have been partially restored, ”Mikhaylov estimates.