Page 163 - RusRPTAug24

banks with total liquid assets and available non-market collateral below 20% of client funds also decreased slightly, to 18% from 20% as of June 1, 2024, indicating ongoing liquidity challenges for a significant portion of the sector.
CBR money: Release of Liquid Securities Eases Liquidity Strain. he volume of government funds held in Russian banks decreased moderately by 0.2 trillion roubles, or 1.7%, in June. This follows a significant increase of 22.7% in May, which was driven by tax inflows. Notably, the structure of government funds saw a reduction in the share of repurchase agreements (repo operations), dropping to 18% from 23%, equivalent to a decrease of 0.6 trillion roubles, bringing the total to 2.3 trillion roubles.
This reduction in repo operations has released a substantial volume of liquid securities to banks. As a result, banks are increasingly seeking funds from federal and regional governments without encumbering securities, aiming to improve their liquidity positions and comply with the new tightened Liquidity Coverage Ratio (LCR) requirements effective from July 1, 2024.
The release of liquid securities allowed banks to reduce their borrowings from the Bank of Russia by 0.7 trillion roubles, or 15.3%, mainly in transactions secured by non-market assets, which decreased by 0.6 trillion roubles. This strategic adjustment helps banks better manage their liquidity needs and align with regulatory requirements.
Bond Portfolio Contracts Slightly, Banks Shift to Variable-Coupon Bonds.
The Russian bond portfolio experienced a slight contraction, decreasing by 0.1 trillion roubles, or 0.3%, to 21.0 trillion roubles. This change was largely influenced by shifts in government and corporate bond holdings.
Investments in Russian government bonds (OFZs) decreased by approximately 70 billion roubles, driven by a negative revaluation of the portfolio amounting to around 60 billion roubles and sales in the secondary market totalling approximately 80 billion roubles. Despite these reductions, banks purchased 90% of the new issues, amounting to around 70 billion roubles. Banks primarily acquired OFZs with variable coupon income to mitigate their interest rate risks in anticipation of further rate increases.
In June, the Russian Ministry of Finance maintained moderate issuance activity, with the volume of OFZs issued at approximately 77 billion roubles, down from around 88 billion roubles in May. Notably, for the first time in 2024, OFZs with variable coupon income were issued, constituting about 80% of the total issuance, with the remaining 20% comprised of fixed-coupon OFZs.
Additionally, investments in foreign currency bonds moderately decreased by about 50 billion roubles due to partial sales of issues. The corporate bond portfolio remained unchanged during this period.
The shifts in investment strategies, particularly the focus on variable-coupon bonds, reflect market participants' efforts to navigate the evolving interest rate landscape.
163 RUSSIA Country Report August 2024 www.intellinews.com