Page 12 - RusRPTDec18

commitments.
The regulator issued a five-year unsecured loan to the agency that year which has grown to more than RUB1 trillion. The debt of the DIA to the CBR by the end of 2017 amounted to RUB821bn rubles, according to the agency.
Now the clean up has moved into a new phase and the lead is being taken by the banking sector consolidation fund rather than the DIA the agency has began to settle its accounts paid back the first RUB17bn last year.
“It is possible, with a certain, perhaps cautious and optimistic, to say that the Deposit Insurance Fund is quietly moving towards some kind of relative self- financing,” the agency’s general director Yuri Isayev said as quoted by Interfax at the time.
At the beginning of 2018, the DIA also increased the base rate of banks' contributions to the from 0.12% to 0.15% of the average balance on deposits for the quarter, which is its main source of funds.
The last time the state increased the size of deposit insurance contributions by banks was at the end of 2014 following a sharp devaluation of the ruble and depositor panic that followed. At that time the maximum amount of deposits that was guaranteed by the DIA was increased from RUB700,000 to RUB1.4mn.
And in the first week of November some members of the Duma floated the idea of increasing the minimum guaranteed amount again to RUB2mn as well as upping the contributions retail banks have to make to the fund – effectively a tax on holding deposits. The CBR’s clean up is not just about closing dodgy small banks: a raft of new regulations and other measures to sure up the solidity of the sector have been introduced. Next up with be the application of the so-called Basel III rules, which mandate bigger provisions and other prudential measures to further improve the solidity of the sector.
For these reasons, and Nabiullina’s super conservative monetary policy, she has been dubbed “the world’s most orthodox central banker.”
Garden Ring crisis
Things changed up a gear in September last year when the CBR closed its first too-big-to-fail commercial banks. The so-called Garden Ring banks went bust and had to be rescued by the CBR. These banks were too large for the DIA to compensate their depositors, but the CBR had set up a new mechanism, the Bank Sector Consolidation Fund, in April that simply took the troubled banks over -- Binbank, Otkritie FC and Promsvyazbank – and kept them open so there is no need to compensate depositors.
The government itself precipitated the September 2017 near miss banking crisis. In April last year the newly formed domestic ratings agency Russian Analytical Credit Rating Agency (ARCA) pulled its AAA ratings for the Garden Ring banks. Under new rules, also launched at the state of last year, state- owned enterprises (SOEs) are not allowed to hold cash banks without these AAA ratings, so the decision lead to the outflow of large deposits at these commercial banks, plunging them into crisis.
Even though the de facto reorganisation of these commercial banks was clearly planned long in advance it nearly ran out of control as the collapse of such one large bank commercial bank threatened to undermine the whole sector. Bank sector profitability, which had been growing steadily for two years after a barren 2014-15, collapsed with the sector as a whole losing over RUB300bn in September alone.
The Garden Ring banks turned to the CBR for help, as can clearly be seen by the spike in repo transactions, where banks use their assets like bonds as
12 RUSSIA Country Report December 2018 www.intellinews.com