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volume needed for new NPLs may amount to up to RUB1.4 trillion rubles, which is only about 2% of the total loan portfolio. This is a sum the sector can easily manage, given the current profitability and capital stock. It should also be borne in mind that the additional creation of reserves will not be one-time, since the process of maturing bad loans will take time (up to 2 - 3 years), especially for loans to large corporate borrowers.
Impaired loans are comfortably covered by reserves, while the CBR allowed banks to delay the recognition of reserves against pandemic-driven restructuring to end-1Q21 for corporate loans and to end-1H21 for retail and SME loans. We expect banks to continue to restructure loans in 2021, and some rescheduled exposures may become impaired, keeping the cost-of-risk ratio above pre-pandemic levels.
8.1.5 Liquidity, NIMs & CARs
Liquidity in the banking sector remains strong. The total volume of ruble liquid assets of the banking sector (cash, claims on the Bank of Russia and unsecured market collateral) in January decreased by RUB0.6 trillion, to RUB14.7 trillion, after the sale of part of OFZs as part of repo transactions with the Bank Russia.
Nevertheless, this reduction in the overall level of liquid assets sufficiency had no significant effect. This volume of liquidity covers almost a third of the total funds of clients.
In addition to liquid assets, banks can raise funds from the Bank of Russia secured by non-marketable assets (for example, high-quality credits). As of January 31, 2021, the volume of such assets included in the “soft collateral” 15 amounted to RUB4.8 trillion.
The volume of liquid assets of credit institutions in foreign currency increased from $46.7bn to $52.8bn (against the backdrop of an increase in foreign exchange funding), approaching the average level of 2019. The total volume of foreign exchange liquidity is sufficient to cover about 37% of foreign exchange funds of corporate clients, or 16% of all foreign exchange liabilities, which is a comfortable level.
The sector's balance sheet capital in January grew by RUB46bn, to RUB10.7 trillion, which is significant lower earnings due to negative revaluation of securities through other comprehensive income (RUB43bn), as well as due to adjustments to the profit of previous years taking into account events after the reporting date (about RUB100bn).
The sector's capital adequacy data for January is not available yet. In December, the aggregate capital adequacy ratio (N1.0) increased by 0.08 p.p. to 12.47%, due to an increase in aggregate capital (+ 0.2%) and a decrease in the size of risk weighted assets (RWA ) (-0.4%).
90 RUSSIA Country Report March 2021 www.intellinews.com