Fig. 11. Russian foreign exchange reserves (billions of dollars) The national foreign exchange reserves consist of two parts, the Stabilisation Fund that was transformed into the Reserve Fund and the National Welfare Fund1 in early 2008, and the Bank of Russia foreign exchange reserves. The Reserve Fund and National Welfare Fund are targeted funds for the financing of the federal budget deficit (Reserve Fund) and financing pension requirements (National Welfare Fund). Fig. 1 shows that starting from the outset of the 2008 crisis, the portion of foreign exchange reserves administered by the Bank of Russia decreased from 434 billion dollars in July 2008 to 164 billion dollars in February 2009, i.e. by 270 billion dollars. After February 2009, as the oil prices rose, the Bank of Russia reserves were replenished. By the end of 2009, foreign exchange reserves had grown to 440.6 billion dollars, including 288.5 billion dollars of foreign exchange reserves administered by the Bank of Russia.
Lending to banks by the Bank of Russia and the government The onset of the financial crisis and the resulting crisis of confidence signified the end of the carry trading model as a bank funding mechanism. However, from the start of the financial crisis in August and September 2008, Russian banks received massive support from the Bank of Russia and the Ministry of Finance. The carry trading funding model was replaced by a bank funding model that used borrowings from the state monetary authorities. Such support took the form of lending, whose volume can be estimated using net bank claims upon the Bank of Russia and government authorities that are shown in Fig. 12.
These funds are known internationally as sovereign welfare funds.
RUSSIAN ECONOMY IN trends and outlooks Source: Bank of Russia banking sector review.
Fig. 12. Estimates of government support to banks (billion rubles) In July 2008, net banking sector claims upon the Bank of Russia and government agencies totalled approximately 1.5 trillion rubles, i.e. until then banks had acted as creditors to the Central Bank and government authorities. The funds held by banks in deposits and correspondent bank accounts at the Central Bank of Russia and invested in Bank of Russia bonds and government securities exceeded the limited lending received from the Bank of Russia and deposits by government authorities by the above amount. The situation drastically changed starting from September 2008 when the Central Bank and government agencies became net creditors to the banking sector. At the start of the crisis, decisions were taken to lower the mandatory reserve requirements, to place the temporarily liquid funds from the state budget and government corporations in bank deposits, to promote lending to banks by the bank of Russia by way of direct repo transactions and later by way of unsecured loans and other types of lending. The principal emphasis was on lending to banks by the Bank of Russia. By November 2008, net bank borrowings from the Central Bank of Russia and government agencies amounted to 957 billion rubles, and reached 1.3 trillion rubles by December of that year. In January 2009 total net bank borrowings reached a maximum of 1.7 trillion rubles. Thus, from being net government creditors in an amount of 1.6 trillion rubles, banks became net debtors in an approximately equal amount of borrowings. Thus the total volume of government lending to banks was approximately 3 trillion rubles.
Starting from February 2009, i.e. from the beginning of Russian stock market recovery, the Ministry of Finance and the Bank of Russia implemented a policy of gradual withdrawal from the banking system. By December 2009 banks once more became net creditors to the Bank of Russia and government agencies in the respective amounts of RUR 703 billion and RUR billion. While these amounts were below pre-crisis levels, they signified the end of net government lending to banks. As of January 1, 2010, total net banking sector claims upon govSection Monetary and Budgetary Spheres ernment agencies had grown to 584 billion rubles from 115 billion rubles as of August 1, 2008 (see Table 3), i.e. by RUR 469 billion, pointing to the fact that these agencies had cut back on their lending to banks and had once more become net debtors. Within the same period, net banking sector claims upon the Bank of Russia had decreased from RUR 1,411 billion to RUR 703 billion, meaning that the cost of banking sector support by the monetary authorities by way of decreasing the amounts of bank funds used to finance the Central Bank equalled 708 billion rubles.
Fig. 13 shows the same data on net banking sector claims upon the Bank of Russia and government authorities as a percentage of total banking sector assets. It shows that the amount of government lending to banks was equal to the amounts foregone by these banks as a result of the forced abandonment of carry trading strategies. Earlier in Fig. 10, we could see that prior to the August 2008 crisis the amount of net lending to banks using the strategy equalled approximately 10.7% of total banking sector assets. The change in banking sector claims upon the bank of Russia from August to December 2008, was nearly identical in numeric terms, amounting to 10.8% of total banking sector assets (see Fig. 13).
Source: Bank of Russia financial institution review.
Fig. 13. Net banking sector claims upon government authorities and the bank of Russia as a percentage of total assets (total liabilities) Fig. 14 shows an analysis of the various forms of lending to the banking sector used by the Bank of Russia. During the crisis, unsecured loans were used as the principal instrument of support to banks starting from October 20, 2009. Such lending is not customarily used by central banks in other countries and implied a significant credit risk assumed by the Bank of Russia. Bank of Russia lending support to the banking system during the crisis did not typically link such lending to the size of bank loan portfolios, except in the case of loans collateralized by specific types of assets (see Fig. 14). This is the most likely reason for the limited growth of bank retail and corporate loan portfolios during the crisis, despite the substantial banking RUSSIAN ECONOMY IN trends and outlooks sector funding support by the Bank of Russia that had caused the latter to assume significant credit risk.
Source: Bank of Russia.
Note. The “internal lending volume” and “overnight loan exposure” amounts are close to zero and thus were excluded from the Fig.
Fig. 14. Lending to the banking sector by the Bank of Russia (millions of rubles) A more traditional instrument widely used by the Bank of Russia to enhance the stability of the banking sector during the crisis was short-term lending to banks using direct repo transactions. Fig. 15 shows the three stages of Russian banking sector development defined by the predominant use of various funding sources to support bank liquidity. The first stage, from 2000 to 2003, was characterized by moderate liquidity and bang funding predominantly using internal sources, while interbank interest rates were relatively high. The second stage, from 2004 through July 2008, saw the peak of the carry trading strategies when banks were able to raise cheap funding abroad. The influx of cheap short-term foreign funding resulted in excess liquidity in the banking sector and low interbank borrowing rates. The third stage started from the outset of the current financial crisis (August 2008) and is characterised by the temporary cessation of carry trading strategies that in turn led to a rapid increase in interbank borrowing rates and the subsequent involvement of government agencies, whose funding temporarily substituted foreign borrowings and mitigated the situation in the interbank market.
Section Monetary and Budgetary Spheres Source: Bank of Russia.
Fig. 15. Monthly bank liquidity indicators and interbank borrowing rates, 2001 – January Source: Bank of Russia.
Fig. 16. The use of direct repo transactions to regulate banking sector liquidity in 2003-January RUSSIAN ECONOMY IN trends and outlooks Fig. 16 shows the relationship between interbank borrowing rates and the use of the direct repo mechanism. At the time of growing liquidity, the bank of Russia used direct repo transactions only occasionally and on a limited scale. From the outset of the financial crisis, they were more widely used to stabilize the interbank lending market. Such transactions were concluded regularly in a daily basis, and their volumes had increased significantly from pre-crisis levels.
Growth of bank deposits and bank de-leveraging Among the most effective crisis mitigation measures aimed at supporting the banking sector was the state undertaking to increase the amount of full guarantees for retail bank deposits from RUR 400,000 to RUR 700,000 for aggregate deposits by an individual at a single bank. Set against the flight of individual investors from high-risk assets such as corporate stocks, investment fund shares, and junk bonds, this ensured significant growth of retail bank deposits at a time of crisis. From August 1, 2008 to January 1, 2010, retail bank deposits grew from RUR 5,850 billion to RUR 7,485 billion, which resulted in an increase in the banking sector revenue base of RUR 1,635 billion (see Table 3).
The decrease in bank loan portfolios and the growth in retail deposits during the crisis resulted in a de-leveraging of the banking system (see Fig. 17), i.e. the decrease in the ratio of net banking sector claims upon retail and corporate borrowers relative to total banking sector assets, from 19.3% as of August 1, 2008, immediately prior to the crisis, to 9.1% as of January 1, 2010. Besides the decrease in loan portfolios, this ratio was also influenced by the limited availability of cheap foreign funding for banks.
Source: Bank of Russia.
Fig. 17. The ratio of bank loans to bank deposits as an indication of de-leveraging (percentage to total banking sector assets (liabilities)) Section Monetary and Budgetary Spheres Summary estimates of crisis mitigation support measures The principal instruments of funding support to banks, as shown in Table 3, consisted of rebalancing bank assets and liabilities denominated in foreign currency, decreasing net banking sector claims upon the Bank of Russia, increasing bank capital by means of government and private owner equity injections, and increasing retail and corporate deposits. As of the end of 2009, the total amount of such support can be estimated at more than RUR 7 trillion.
These measures have helped maintain the stability of the banking sector, however, they did not result in its increased efficiency or in the growth of bank loan portfolios during the crisis.
Table Quantitative estimates of the effect of banking sector support measures, billions of rubles August 1, January 1, Cost Effect 2008 Net claims upon non-residents –2377 905 3282 Rebalancing foreign currency-denominated assets and liabilities by way of a gradual devaluation of the ruble Net claims upon the state 115 584 –469 Mobilizing funds for financing the government Net claims upon the Bank of 1411 703 708 Increasing bank liquidity by the Bank of Russia Russia Bank equity 3116 4120 1004 Increasing bank capitalization Retail deposits 5850 7485 1635 Increasing deposit insurance to RUR700,Corporate deposits 4465 5467 1001 Increasing bank funding, including by way of state-owned company deposits Total Thus the main positive outcome of government crisis mitigation policies in 2008-2009 was the preservation of the banking sector. This had involved unprecedented measures, both in terms of scale and range of application in the Russian market, to ensure banking sector stability. The principal related issue is that, despite being able to maintain stability due to these measures, the banking system has remained inefficient and incapable of tackling the issues of large scale economic modernization, same as prior to the crisis. In terms of banking sector efficiency, in 2009 Russia ranked last among 55 countries whose financial market competitiveness was estimated by the World Economic Forum1.
2.4.4. Measuring the effectiveness of crisis mitigation measures in the stock market During the crisis, government support to the stock market involved the use of two principal channels, the subordinated loan of RUR 175 billion at 7% p.a. to Vnesheconombank from the National Welfare Fund for the purpose of supporting the Russian stock market, and a set of measures to support the ruble-denominated corporate bond market as an alternative to bank lending.
Vnesheconombank support to the stock market Vnesheconombank received the subordinated loan at a 7% interest rate in October 2008 for the purposes of supporting the stock market and repaid it on December 15, 2009. The impact World Economic Forum. The Financial Development Report. 2009, page 210. Published at www.weforum.org.
RUSSIAN ECONOMY IN trends and outlooks of this loan on the trading activities of government banks and related entities is shown in Fig.
18. From October 2008 through July 2009, the share of government entities in the total trading volume at MICEX increased from the pre-crisis level of 25% to 34-50%, which suggests that this period witnessed active government interventions in the stock market. At the same time, from August to December 2009, the level of government trading at the stock exchange remained at pre-crisis levels, which raises doubts as to whether the stocks purchased using government funding were indeed sold on the 175 billion ruble loan was repaid by Vnesheconombank1. It is likely that Vnesheconombank used other sources to repay the loan to the Ministry of Finance.
Note. Bank of Russia figures are close to zero and are not visible given the scale of the Fig.
Source: proprietary calculations using MICEX data.
Fig. 18. The share of private and state brokers in MICEDX trading volumes (%)The impact of using government funds upon the stock prices of Russian issuers is shown in Fig. 19 that follows the MICEX index from its peak as of May 2008 to January 2010, juxtaposed against MICEX stock market trading volumes, shown separately for private trading participants and government entities. The drop in the MICEX index from June 2008 to January 2009 was largely caused by the decrease in the activity of private investors. Despite the increase in the share of government entities in stock market trading volumes from October 2008 to July 2009, such volumes remained at pre-crisis levels in terms of absolute numbers.
Материалы этого сайта размещены для ознакомления, все права принадлежат их авторам.
Если Вы не согласны с тем, что Ваш материал размещён на этом сайте, пожалуйста, напишите нам, мы в течении 1-2 рабочих дней удалим его.