BoR Secured Loans
Main purpose of the operations
A loan is the extension of money from one party to another on a repayable basis for a certain period of time and, as a rule, for certain interest, which is based on a loan agreement.
Central banks may extend loans for various reasons. As a monetary policy tool, loans are used to regulate the volume of liquidity and steer the short-term money market interest rates. Furthermore, loans may be granted to promote the smooth operation of the payment system, provide assistance to credit institutions challenged with temporary liquidity shortages, and to restore or maintain financial stability.
The Bank of Russia extends secured loans as part of its different functions, but principally as part of its monetary policy framework through the Primary mechanism of liquidity provision. Secured loans are included in the two main groups of standard monetary policy operations — currently the Bank of Russia can practice both loan auctions and standing lending facilities.
Bank of Russia loan auctions are primarily used to manage total banking sector liquidity. The Bank of Russia resorts to these operations in case of a structural liquidity deficit to cover medium-term demand for bank reserves, including when credit institutions are short of marketable collateral.
Credit institutions may draw on Bank of Russia standing lending facilities of the Primary mechanism of liquidity provision — intraday loans, overnight loans, Lombard loans and loans secured by credit claims — on any business day in accordance with the procedure established per each loan type.
The Bank of Russia also extends secured loans for other purposes, which are not associated with bank liquidity management and overnight money market interest rates steering or monetary policy as a whole.
The Supplementary mechanism of liquidity provision is created to support individual credit institutions experiencing liquidity shortages. Supplementary mechanism loans represent standing facilities with terms from 1 to 180 days at floating interest rate which equals the key rate plus 1.75 percentage point. The collateral pool for the Supplementary mechanism is wider than for the Primary mechanism.
The Special facilities are aimed at supporting bank lending to certain industries or segments of the economy whose development is hampered by structural factors or damaged by crises phenomena. In general, the Special facilities are loans for longer terms and with beneficial interest rates. The Bank of Russia has proposed the following facilities:
- Bank of Russia loans secured by credit claims on agreements backed by insurance contracts of JSC EXIAR;
- Bank of Russia loans secured by credit claims of JSC SME Bank on credit institutions or microfinance organisations or leasing companies;
- Bank of Russia loans secured by guarantees of JSC Russian Small and Medium Business Corporation;
- Bank of Russia loans secured by credit claims on leasing companies;
- Bank of Russia loans secured by credit claims on agreements for investment projects;
- Bank of Russia loans secured by bonds placed for investment project funding and included in the Bank of Russia Lombard List;
- Bank of Russia loans secured by mortgages issued under the Military Mortgage Programme.
For relevant interest rates on special facilities refer to the Interest rates on Bank of Russia special facilities section.
Committed Liquidity Facilities (CLFs) are opened by the Bank of Russia for systemically important credit institutions to make up for a shortfall in Basel III high quality liquid assets in order to comply with the liquidity coverage ratio (the LCR). The Bank of Russia provides loans under the facilities at the interest rate that equals the key rate increased by 1.75 percentage points.
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Operation overview
The below sections only cover loans extended as part of the Primary mechanism and the Secondary mechanism of liquidity provision.
Governing documents
Secured loans are extended in compliance with Bank of Russia Ordinance No.
For operations to be carried out in accordance with the Terms and Conditions, credit institutions should duly address the Bank of Russia’s authorised division to conclude an Agreement of Participation in the Operations on the Issue and Redemption of Bank of Russia Loans Backed by Securities or Credit Claims (further referred to as the Loan Participation Agreement).
Counterparties and criteria for access to secured Bank of Russia loans
Secured loans are only issued to Russian credit institutions. The Bank of Russia sets no other criteria for concluding a Loan Participation Agreement. However, the Bank of Russia only grants loans if a credit institution’s right to obtain loans is not suspended and if a credit institution satisfies the following two criteria set forth in the Ordinance:
- the credit institution has at least one or more credit ratings assigned by national credit rating agencies ACRA (JSC) / Expert RA JSC / NCR LLC / NRA LLC, the minimum of which is at level not lower than “B-(RU)” / “ruB-” / “B-.ru” / “B-|ru|” for securities-backed loans and “BB-(RU)” / “ruBB-” / “BB-.ru” / “BB-|ru|” for loans secured by credit claims on the Russian Federation’s national rating scale;
- the credit institution has no overdue liabilities to the Bank of Russia on secured loans (including payment for the right to use Committed Liquidity Facilities) and unsecured loans, repos, transactions of purchase or sale of securities, foreign currency (including swaps) and precious metals, operations on placement of deposits by the Bank of Russia.
The criteria of the credit rating level for suspending a credit institution’s right to obtain the Bank of Russia loans does not apply if in respect of credit institution measures are being taken to prevent bankruptcy with the participation of the Bank of Russia or the state corporation “Deposit Insurance Agency”.
Document exchange procedure
The Bank of Russia determined a list of documents to be submitted by credit institutions electronically. These documents may be submitted to the Bank of Russia in hard copy only if it is technologically infeasible to submit them electronically.
Currently, credit institutions participating in credit operations can only submit documents to the Bank of Russia electronically under the agreement for electronic message transfer relating to the transfer of funds within the Bank of Russia payment system.
The Bank of Russia determined the divisions authorised to receive these documents and the timeframe for their acceptance.
Credit institutions can submit documents to obtain loans, which are not listed above, both in hard and soft copy (given that the credit institution can submit and the Bank of Russia can receive the document electronically).
Loan accounts
Secured loans, including intraday and overnight loans, can be transferred to correspondent accounts serviced by any division of the Bank of Russia (in accordance with the Terms and Conditions for the Issue and Redemption of Bank of Russia Loans Backed by Securities or Credit Claims — available only in Russian). The list of such accounts (aka key accounts) is determined in the Loan Participation Agreement.
A credit institution can initiate revision of the key account list by requesting the Bank of Russia to amend the Loan Participation Agreement in accordance with the procedure stipulated in Chapter 6 of the Terms and Conditions. In cases stipulated in the said Chapter the Bank of Russia can exclude individual key accounts from the Loan Participation Agreement at its own discretion.
Interest rates on loans
Interest on Bank of Russia intraday loans is not accrued; neither is a service fee charged. Interest on other loans is accrued on the principal (principal residuals) for each calendar day starting from the day following the loan issue to its actual repayment inclusive. Interest is calculated using the simple interest formula.
For relevant information on interest rates on all types of secured Bank of Russia loans, including minimum bid acceptable rates, refer to the Interest Rates section.
Loan redemption and interest payment
The redemption of loans (other than intraday loans), including early repayment of loans at a credit institution’s discretion or the Bank of Russia’s request, and the payment of related interest are made by means of debiting the credit institution’s correspondent account to which the respective loan was transferred, based on the Bank of Russia’s collection order.
Early repayment of the Bank of Russia loans is possible on the credit institution’s discretion or the Bank of Russia’s request if there are reasons to do so in accordance with the Terms and Conditions, including the presence of the credit institution’s overdue liabilities to the Bank of Russia on secured loans and unsecured loans, repos, transactions of purchase or sale of securities, foreign currency (including swaps) and precious metals, operations on placement of deposits by the Bank of Russia. Credit institution for early repayment of the Bank of Russia loan on the credit institution’s discretion must notify the Bank of Russia about this in accordance with the procedure determined by the Terms and Conditions.
Bank of Russia loans are repaid within the established schedule.
In general, loans are repaid, including before maturity, within the main timeframe. Should a credit institution intend to use the released collateral to obtain a new loan the same day, it may apply to the Bank of Russia to change the time of collection order delivery for loan redemption or supplement the notification of early loan repayment with the respective provision.
Should the Bank of Russia request early loan repayment, it may produce collection orders at any time.
Interest on loan is repaid when the principal or its final part is redeemed (including in the case of early loan repayment). If a Supplementary mechanism loan secured by non-marketable assets matures in more than 30 calendar days, interest is also repaid on the 20th day of each month.
Collateral (eligible assets)
Loans extended under the Terms and Conditions may be backed by securities or credit claims (non-marketable assets). Each loan should be secured with one type of assets only (either securities or non-marketable assets).
The Loan Participation Agreement should provide for only one type of assets eligible as collateral on intraday and overnight loans transferred to one key account. This restriction does not apply to other loans, that is, a Loan Participation Agreement may provide for one or two types of assets eligible as collateral on other loans transferred to one key account.
A credit institution may change the types of assets eligible as collateral on loans entering its key account by means of submitting a request to amend the Loan Participation Agreement to the Bank of Russia in accordance with the procedure stipulated in Chapter 6 of the Terms and Conditions.
To obtain loans, a credit institution should create one or two collateral pools for each key account (depending on the type of assets indicated in a Loan Participation Agreement). Each collateral pool comprises either securities or non-marketable assets. Chapter 8 of the Terms and Conditions stipulates the procedure for creating collateral pools.
Securities eligible as collateral on Bank of Russia loans may only comprise securities included in the Lombard list.
Securities eligible as collateral on Primary mechanism loans are bonds issued on behalf of the Russian Federation, Bank of Russia bonds, and also securities which have at least two credit ratings assigned by different credit rating agencies, while the minimum credit rating level should not be lower than “АА-(RU)” / “ruАА-” / “АА-.ru” / “AA-|ru|” according to the classification of ACRA (JSC) / Expert RA JSC / NCR LLC / NRA LLC.
Securities eligible as collateral on intraday and overnight loans of the Primary mechanism also include securities with at least one credit rating and the minimum credit rating level not lower than “А-(RU)” / “ruА-” / “А-.ru” / “A-|ru|” according to the classification of ACRA (JSC) / Expert RA JSC / NCR LLC / NRA LLC.
Currently, the Bank of Russia doesn’t accept securities as collateral on Supplementary mechanism loans.
That said, certain securities included in the Lombard list may not be accepted as collateral on Bank of Russia loans on certain days due to their incompliance with the requirements of Chapter 9 of the Terms and Conditions. The Bank of Russia posts Information on Securities Eligible as Collateral on Loans (available only in Russian) on a daily basis.
To include securities eligible as collateral in the pool, a credit institution should reassign them to the category ‘Blocked by the Bank of Russia’ of its depository account with a depository authorised to register securities eligible as collateral on Bank of Russia loans.
Credit claims are also eligible as collateral on Bank of Russia loans. The Russian Federation, Russian regional and municipal governments and Russian corporations compliant with the Bank of Russia’s criteria may be debtors of such credit claims.
In particular, the Bank of Russia lists the main activities which can be exercised by corporations acting as debtors or borrowers for the said credit claims.
Also, the Bank of Russia has established that in the collateral pools can accept credit claims, on which amount of principal debt is expressed in United States Dollars, Euros, Pounds Sterling, Chinese Yuan provided that the credit agreements allow the creditor to demand the fulfillment of obligations in rubles.
To include a credit claim in the collateral pool, a credit institution should supplement the respective request addressed to the Bank of Russia.
In order to decide whether to include or keep a credit claim in the collateral pool, the credit risk of the debtor is assessed. For this, credit ratings assigned by credit rating agencies ACRA (JSC) or Expert RA JSC or NCR LLC or NRA LLC (if any) or the results of a credit risk assessment conducted by the Bank of Russia are used.
If a debtor does not have a credit rating assigned by credit rating agencies ACRA (JSC) or Expert RA JSC or NCR LLC or NRA LLC, credit risk is assessed by the Bank of Russia on the basis of financial ratios calculated from financial statements of a debtor. The ratios characterize the debtor’s liquidity, business activity, profitability, debt service and capital structure. In addition, indicators of payment behavior and credit history of a given entity are taken into account.
Credit claims eligible as collateral on the Primary mechanism must have at least two credit ratings assigned by different credit rating agencies, while the minimum credit rating level should not be lower than “АА-(RU)” / “ruАА-” / “АА-.ru” / “AA-|ru|” according to the classification of ACRA (JSC) / Expert RA JSC / NCR LLC / NRA LLC.
Credit claims eligible as collateral on the Supplementary mechanism must have at least one credit rating assigned by credit rating agencies, while the minimum credit rating level should not be lower than “А-(RU)” / “ruА-” / “А-.ru” / “A-|ru|” according to the classification of ACRA (JSC) / Expert RA JSC / NCR LLC / NRA LLC, or a correspondent level of credit risk estimated by the Bank of Russia.
Credit claims eligible as collateral on intraday and overnight loans of the Primary mechanism also include credit claims eligible as collateral on Supplementary mechanism loans.
The Bank of Russia takes a decision on the request to include non-marketable assets in the collateral pool within 5 business days after its receipt.
Adjustment ratios and collateral adequacy
To manage risks on credit operations, the Bank of Russia applies adjustment ratios set for both eligible securities and credit claims.
The cost of securities eligible as collateral on Bank of Russia loans and the respective adjustment ratios are disclosed in the Information on Securities Eligible as Collateral on Loans (available only in Russian).
The cost of credit claims eligible as collateral on Bank of Russia loans is determined in accordance with the procedure stipulated in Chapter 15 of the Terms and Conditions and calculated using adjustment ratios.
The collateral on Bank of Russia loans is deemed adequate if the cost of assets accepted as collateral and adjusted for adjustment ratios equals to or exceeds the principal and interest accrued during the loan period.