Page 72 - RusRPTApr20

However, clearly with global economic growth expected to fall off the cliff in the coming months thanks to the double whammy of collapsing oil prices and the coronavirus (COVID-19) pandemic it is highly unlikely that 2020 will be a very profitable year for Russia’s banks. Most will simply concentrate on getting to December in one piece.
As bne IntelliNews reported a bank crisis at this point remains highly unlikely. As bne IntelliNews reported repo volumes jumped in February – an early indicator of trouble in the banking sector – but the amount raised by banks was only RUB80bn a day, well below crisis levels and on a par with the normal volumes pre-2017 when daily volumes on the repo markets were regularly over RUB100bn during normal operations.
Banks have deleveraged, NPLs are low, liquidity is sufficient and the Central Bank of Russia (CBR) is watching for stress signs like a hawk. Unless the current public health crisis sparks a global financial crisis (a very real possibility) then the worst that will happen to the bank sector is a year of poor profits.
Putin announced anti-crisis measures including on banks, financial markets on March 24.
Tax on deposits interest earned: A 13% income tax was introduced on the interest rate of deposit and bond investments exceeding RUB1mn. It is not yet very clear whether the amount refers to a single bank deposit or an individual’s total deposits, as it is not clear how the data will technically be gathered. The Deposit Insurance Agency’s statistics, 45% of deposits are under RUB1mn in Russia, implying a large amount of deposits will be taxed.
Loan repayment holidays: Putin addressed loan payment holidays for retail borrowers whose incomes fall by more than 30%, but mechanics were not provided – whether the holidays affect the full payment or only part of it. Corporate borrowers will also be supported through higher loan affordability under state guarantees and an exclusion on bankruptcy filing for 6 months.
BCS GM says the announced measures may pressure banks’ P&L in 2020, albeit for now it is hard to estimate precise amounts. Most of the impact will come from higher CoR and possible decline in NII.
Russia’s banks are not exposed to the recent devaluation of the ruble.
Most banks operate with small open currency positions, so the direct impact of recent ruble depreciation against the dollar to RUB74 on 17 March from the pre-crisis levels of RUB63 at end-January is limited.
Foreign currency risk-weighted assets made up 22% of the sector total, according to BCS GM, meaning that the drop in the ruble could have resulted in a 40bp-50bp reduction in average sector capital ratios as of the middle of March.
In case of sharp and sustained ruble depreciation the CBR may provide banks with regulatory forbearance, temporarily allowing lower exchange rates to be used for capital ratios calculations, as happened during the last oil shock in 2015-2016.
The CBR recently announced some measures to soften the potential
72 RUSSIA Country Report April 2020 www.intellinews.com