Irrevocable credit line parameters
The Bank of Russia Board of Directors has decided to set the irrevocable credit line (ICL) fee for ICL agreements1 to be executed from 1 May 2019 at 0.5% p.a. of the maximum ICL limit set for a credit institution. For earlier opened ICLs, the fee will be kept unchanged until their expiry.
In making its decision to change ICL parameters, the Bank of Russia recognised the following factors.
The volume of high-quality liquid assets (HQLA) available in the market has grown considerably over the past several years; therefore, the demand for BoR ICLs as an additional source of funds for meeting the liquidity coverage ratio (LCR) is shrinking. Prior to the introduction of the LCR, amid a structural liquidity deficit, Russian credit institutions experienced a shortage of HQLA to calculate the LCR2; however, the banking sector currently operates in the context of a structural liquidity surplus. Further ahead, banks are expected to have more available assets corresponding to Basel III criteria.
According to Bank of Russia estimates, the overall liquidity surplus in the banking sector3 will remain in the near term. In this situation, the volume of credit institutions’ funds placed in correspondent accounts, deposits and Bank of Russia coupon bonds will continue to be considerable4. Supply in the OFZ market will also expand. In line with OFZ issuance plans5 of the Russian Ministry of Finance, the OFZ market volume may reach roughly 12.4 trillion rubles in early 2022 (a 5.1-trillion-ruble increase vs the market volume as of 1 January 2019). In view of the above, systemically important credit institutions will be able to observe the LCR using predominantly market instruments.
According to Basel Committee on Banking Supervision standards6, the estimate of the ICL fee is based on the difference between the yields of highly liquid assets and the yields of less liquid assets of comparable credit quality. Higher ICL fees will stimulate banks to observe the LCR through the build-up of their HQLA portfolios rather than through the use of ICLs.
1 The conditions and form of the agreement are set forth by Bank of Russia Order No. OD-3381, dated 30 November 2015, ‘On Issuing Bank of Russia Loans under Agreements on Opening an Irrevocable Credit Line’.
2 See ‘Analysis of the demand for high-liquid assets in the Russian banking sector’ on the Bank of Russia website.
3 See Monetary Policy Guidelines for
4 These funds constituting balances in the accounts of systemically important credit institutions (excluding deposits with the Bank of Russia for more than 1 day) will be included in HQLA. Deposits with the Bank of Russia for more than 1 day are viewed as part of the expected inflow of funds and therefore help improve the actual LCR reading.
5 See Fiscal and Customs Policy Guidelines for 2018 and the Plan Period of 2019 and 2020 (approved by the Russian Ministry of Finance).
6 Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools (January 2013).
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