Press conference of Bank of Russia Governor Elvira Nabiullina on 10 April 2020
Good afternoon,
Today, we are holding our second weekly press conference on the current situation and the measures being implemented to support the economy and the financial system.
It is essential now for as many people as possible to stay home. And we are also doing our best to transfer as many employees as possible to remote work. Therefore, beginning from today’s conference I will read journalists’ questions myself.
But before answering the questions, I will briefly speak on our current view on the situation, the progress of the earlier approved measures, and the new decisions we have made today at the Board of Directors’ meeting.
I will start out with the situation in the economy. The situation in the global economy has been deteriorating. Unemployment has considerably increased in both the USA and Europe. However, the situation in global financial markets has remained relatively stable this week, including owing to the unprecedented measures being taken by governments and central banks worldwide.
Almost all countries, including Russia, have been experiencing a notable rise in stock prices. Sovereign risk premiums for emerging market economies have been going down, and the exchange rates of these countries’ currencies have partially recovered.
On the back of the information on the OPEC+ negotiations, oil prices have also relatively stabilised, while remaining low. The agreement is to reduce the risk of a further slump in oil prices, including due to the complete filling of oil storages amid plummeting demand. In addition, the already accumulated stocks may considerably extend the time needed for a sustainable recovery of oil prices to months or, possibly, quarters. In making its decisions on monetary policy, the Bank of Russia will as usually rely on the conservative forecast of the oil price and exports.
Due to the non-work period and the restrictions implemented because of the coronavirus infection, we have been observing a substantial decline in economic activity in Russia. According to the data of our payment system, incoming payments weighted by industries’ shares in GDP have decreased by nearly 18% compared to normal early-April levels. The services sector is demonstrating the most notable reduction in economic activity. The smallest decline has been recorded in the manufacturing and sale of food products and other basic goods, as well as medicines.
Our weekly survey of businesses shows that as many as 84% of the companies—against 73% last week—are already experiencing, to a greater or lesser extent, the impact of the economic consequences induced by the coronavirus, including the weakening of the ruble. A little less than 30% reported supply problems, and 40% complained about order cancellations or delays. However, approximately 15% of the companies are observing an increase in demand. About two-thirds of the businesses are expecting a further deterioration of the environment in their industries.
We are currently analysing all leading indicators and all the information available to prepare our new economic forecast for the next key rate meeting to be held by the Board of Directors at the end of April. That said, our fundamental assessment of today’s situation has remained unchanged.
Inflation and price stability. In March, annual inflation slightly accelerated, to reach 2.5% against 2.3% in February. Over the past three weeks, weekly inflation stayed notably higher than the price growth rates typical to this season. Accordingly, our estimate of annual inflation as of 6 April has been raised to
The situation in the Russian financial market has somewhat improved, with the volatility of the ruble and stock prices decreasing. Bond yields have been slightly falling. The Ministry of Finance has resumed federal government bond auctions this week. The share of foreigners in the OFZ market generally remains stable, staying at the level of
Banks have transferred a whole range of their functions to the remote mode, but they continue their operations. This sector maintains its stability. This week, the situation with liquidity was comfortable in all banks, which is why we held no additional repo auctions.
As to lending, March saw a rise in credit activity. Loans to Russian companies expanded by 2.5% in March, with almost one-half of this growth recorded over the last week of the month. This might be associated with the need to offset declining money flows to pay current costs, especially over the non-work week, and with the expectations that banks will become more conservative in lending further on. The retail portfolio has increased by approximately 1.9%.
Non-bank financial institutions also continue their operations, expanding their channels of remote activities. Specifically, I would like to emphasise that pension funds have been properly paying pensions in accordance with their obligations.
Over the last week of March, household deposits grew by 0.5%, considerably offsetting the shrinkage recorded in the previous weeks. This could be associated with both the end of the period of elevated demand for goods and with the slight increase in deposit interest rates by banks (by 0.23 bp to 5.38% over the third ten days of March). By the end of the month, Russian businesses’ equity funds have also materially expanded, supporting the overall liquidity in the banking sector at a comfortable level.
Now, I will dwell on the progress of our key measures taken to support businesses and households.
I will start out with the SME Lending Support Programme. I would like to remind that the preferential 4% refinancing programme is our key instrument to support banks, provided they do not reduce their SME loan portfolios. The limit for this programme totals 500 billion rubles, including 150 billion allocated for wage loans at the zero interest rate subsidised by the Government.
This Monday, all banks eligible to participate in this programme based on their ratings (at least ‘A-’ according to the national scale) received draft general agreements (that is, contracts under which they may receive such loans from the Bank of Russia). By now, three banks from among the TOP-10 by their SME loan portfolios have signed these agreements with the Bank of Russia. They are planning to actually take out these loans next week, currently accumulating data on their loan portfolios as of 1 April, as required by the programme to calculate amounts they may borrow within this instrument. Other banks are going to sign these agreements already next week. The programme has just been launched; therefore, the figures are very low. We will be monitoring its progress together with the Government. I can say that within the wage lending part of the programme the participating banks have received over 900 applications for nearly 6 billion rubles, with 234 applications for a very small amount of 76 million rubles satisfied by the moment. The progress is very slow, failing to meet the current needs and contradicting the urgency of the problem. Therefore, we will continue to communicate with banks to make this mechanism more efficient.
The next issue is the restructuring of loans to small and medium-sized enterprises. The situation in this area is better. According to the information from systemically important banks, over the period from 2 through 7 April the number of restructuring applications from SMEs increased by 22% to exceed 21,000. More than 4,500 applications have been considered (this is nearly four times more compared to the results of monitoring for the previous period from 20 March through 1 April). We can see that banks have been positively responding to these requests, satisfying approximately 97% of the applications considered. Nearly 16,000 applications more are currently under consideration.
In addition, we have arranged with OPORA RUSSIA, the Chamber of Commerce and Industry, and Business Russia that in the case of any controversies in negotiations between businesses and banks, the business associations will act as moderators and address the Bank of Russia where businesses and financial institutions fail to reach an agreement.
Restructuring of household debt. Beginning from 20 March, borrowers have submitted over 107,000 requests for amending their loan agreements due to the decrease in their income caused by the epidemic, with 84,000 applications (79% of the total number) on consumer loans, and 23,000 (21%) on mortgage loans. Moreover, 76,000 requests were filed over the period from 1 through 7 April, which is 2.5 times more than from 20 through 31 March. In other words, we are observing that the growth in the number of such requests has been accelerating.
As of 7 April, banks considered 76,000 applications (i.e. 71% of the total number received). Approximately 15% of the requests considered (9,000 on consumer loans and 2,500 on mortgage loans) were approved, and 65,000 were rejected. Another 31,000 applications are currently under consideration. As you can see, the percentage of refusals to restructure these loans is still high. However, I would like to stress that the current statistics largely represent the data on restructuring before the effective date of the law on the grace period for loan repayments (which is actually the reason for such a significant percentage of refusals after individuals’ applications were considered — 85%). In other words, these are the refusals within the programmes developed by banks themselves. We expect to receive the first information on applications considered and payment deferrals in accordance with the new law already next week.
We will scrutinise not only absolute figures on restructured loans, but also the ratio between applications and approvals. And if we find out that a bank is less loyal to its customers than other banks for whatever reasons, we will look into the situation on a case-by-case basis and communicate with particular banks. It is critical today to support individual borrowers who are temporarily facing difficulties in servicing their loans due to the negative circumstances that are beyond their control.
Before passing on to the new measures, I would like to emphasise two aspects related to our regulatory relaxations.
First. Today, the regulatory relaxations have been mostly implemented until the end of September. However, depending on how the situation is unfolding, the effective period of the regulatory easing may be extended. As the situation returns to normal, we will prepare banks to the cancellation of these relaxations. They will be cancelled gradually, and financial institutions—not only banks—will have enough time to return to the standard mode of the compliance with the required ratios. The information on the termination of the relaxations will be announced in advance. This has been a matter of great concern for banks, and we are communicating with them on this issue. Therefore, I would like to stress once again that these regulatory relaxations will be cancelled gradually.
Second. The relaxations we have implemented cover not only the loan restructuring programmes stipulated by the law, but also banks’ own programmes for corporate loan restructuring. The regulatory easing is applicable to all loans extended to SMEs before 1 March, regardless of whether their respective industries are on the list of the most affected sectors or not. By contrast, in affected industries these relaxations in the banking regulation encompass all businesses, regardless of their size.
We expect that, with these measures in place, banks will be more flexible towards their clients, which will make it easier for the latter to overcome this crisis. As a result, banks will have less non-performing loans in the future. In other words, loan restructuring in this situation is not aimed at concealing existing problems. It is an instrument supporting borrowers, mitigating credit risk for banks, and reducing the share of troubled loans in the future.
I will pass on to the new measures we have approved today. They are aiming to protect borrowers’ interests and support lending to the economy.
We have expanded the list of the most affected industries covered by the Bank of Russia’s regulatory relaxations which provide for the non-deterioration of loan quality assessments and for the absence of requirements for additional loss provisioning.
The expanded list comprises:
- housing construction (provided that as of 1 March 2020 loans granted to housing developers were classified by a credit institution as falling into the 1st or 2nd quality category, i.e. they became non-performing exactly due to the coronavirus outbreak, and had not been persistently troubled).
The expanded list also includes:
- operations of bus terminals and bus stations;
- air transport support activities (these are namely airports);
- manufacture, sale, repair and maintenance of motor transport;
- personal services.
Our support measures will also cover the leasing industry. Banks are allowed not to deteriorate quality assessments for restructured debts of those leasing companies that have themselves restructured payments due from their clients whose financial standing has worsened because of the epidemic. In other words, if leasing companies make concessions to their clients, banks, in turn, may be flexible towards leasing firms.
In addition, we have entitled banks not to revaluate 1st and 2nd category collateral for disbursed loans until the end of September, using as a reference the collateral value as of the beginning of this year. It is obvious how volatile prices of various assets currently are, and this is also true for collateral appraisals. Collateral appraisals are declining, prices for these assets are falling, and we are seeking to prevent banks from demanding additional security from their borrowers. We would like to avoid a situation where a temporary decrease in asset values tightens banks’ requirements for borrowers who are already experiencing hardships.
As I have said before, we are easing the regulations for banks exactly to help them support their clients. We have recommended that banks suspend their decisions on dividend payouts until autumn since it requires time to assess the impact of borrowers’ situation on banks’ capability to pay out dividends and the amount of capital banks will need to do this. If banks are making use of our relaxations, we believe that they should comply with our recommendation to postpone their decisions on dividend payouts. The same logic should also be applicable to other financial institutions.
Now, regarding the measures to support insurers and non-governmental pension funds. Our measures are aiming to help insurers and pension funds to more flexibly and efficiently manage their assets and to expand their opportunities to raise financing.
Thus, we have decided that until 30 September insurers are allowed not to comply with the requirement for the maximum share of corporate securities for investing their insurance reserves and equity funds.
We have also allowed VEB.RF and private management companies not to revaluate securities acquired before 1 March and to recognise debt securities purchased from 1 March to 30 September 2020 at their fair value as of the acquisition date. This measure covers assets amounting to over 1.3 trillion rubles. Similar measures are applicable to the portfolios of closed-end unit funds for qualified investors (the value of these portfolios exceeds 1.2 trillion rubles).
Non-governmental pension funds are not only allowed not to revaluate securities at their market value. We have also entitled NPFs not to revaluate assets acquired after 1 March 2020 in the course of stress testing and to recognise assets purchased from 1 March to 30 September at their fair value as of the acquisition date.
I would also like to emphasise that for stress testing NPFs are now recommended to use the scenario published last September. As to the new one that will factor in the dramatic developments, it is currently being prepared and will be published in the next months.
We are also expanding capabilities for rendering remote services so as to prevent people from leaving their houses and financial institutions from increasing the number of employees physically present at offices. Not to delay housing purchases using mortgage loans which required borrowers’ personal presence, we are temporarily easing the client identification requirements for banks. Thus, banks will be able to execute mortgage transactions remotely.
We are also implementing additional measures for microfinance organisations to reduce personal communication with customers. We recommend that they limit face-to-face communication with borrowers, including for overdue debt recovery, and use cash to a lesser extent.
The deadline for microfinance organisations to submit the reporting due from 30 March to 5 May will be extended to 15 May.
In addition, the Bank of Russia recommends that self-regulatory organisations take into account all temporary regulatory and supervisory measures and postpone all control activities in relation to their members.
All the new measures are covered in detail in the press release to be published today on the Bank of Russia’s website.
I will now answer your questions.
Q&A for the Media
QUESTION from Interfax:
Does the Bank of Russia forecast a decline in loan servicing by businesses and households and a deterioration of the quality of banks’ credit portfolios? Will this have a scale comparable with the previous crises? Does the Bank of Russia expect that Russian banks may face capital adequacy problems this year or in 2021? Is the Bank of Russia planning to ease the regulation for banks, for instance, to decrease systemic importance buffers?
ELVIRA NABIULLINA:
Of course, the current situation cannot be overcome without any adverse consequences for banks’ balance sheets. And we do expect that the quality of loan servicing by businesses and households will somewhat deteriorate, especially in the most affected industries. However, the loan repayment holidays that are currently under consideration will help get over this crisis easier and reduce the share of troubled loans in the future.
It is rather hard to forecast the share of loans that may become non-performing. This will depend on the duration of the restrictions, the pace of companies’ recovery, and the efficiency of the support measures. However, I would like to stress once again that the objective of the regulatory relaxations we have been implementing is not for banks to conceal the actual quality of loans and assets. Their actual quality will become clear only after a certain period of time. And such deferrals and loan repayment holidays will help borrowers overcome this situation easier and return to normal life, that is, reduce the amount of non-performing loans on banks’ balance sheets.
There was also a question regarding the easing for different buffers, including the systemic importance buffers to capital adequacy ratios. Currently, we see no problems related to capital adequacy. Indeed, over the period of its resolution, the banking system has accumulated rather solid capital and buffers. However, if needed, we may certainly consider other regulatory relaxations in the future. The situation is changing fast, and in these conditions we are ready to act flexibly and promptly in order to support our financial system and ensure that the financial system helps the economy.
QUESTION from Kommersant:
Is the Bank of Russia observing an increase in payment defaults under contracts over the last week, generally across all industries? What are the scales and dynamics?
ELVIRA NABIULLINA:
No, currently we do not see a considerable rise in payment defaults, but we will be monitoring this situation. Actually, the objective of the restructuring is to prevent such payment defaults. Banks and their clients shall act in accordance with law and their programmes in order to streamline the procedures and to grant a respite and an opportunity to clients. For our part, we will help banks adjust to the situation where their clients make due payments later on.
However, talking about contracts in general, and not only in relation to banks, we are not currently observing such a trend. We will be tracking the situation, and I hope that, first and foremost, the measures being implemented by the Bank of Russia and also the Government’s measures will help avoid such problems.
QUESTION from Bloomberg:
How probable is it that the Bank of Russia will cut the key rate at the next meeting of the Board of Directors, given that the Ministry of Economic Development expects that in April the transmission effect of the ruble exchange rate will exhaust and inflation will return to normal?
ELVIRA NABIULLINA:
As to the transmission of the ruble exchange rate (to inflation — Ed.), it usually takes a longer period of time, generally from 3 to 6 months. Therefore, it would be probably too early now to say that all effects of the ruble depreciation have already been exhausted. However, we do see that the price growth both in March and early April is in line with our expectations, not only in terms of rates, but also in terms of the estimated nature of this inflation. We believe that this trend will be short-term, and disinflationary factors will prevail over a medium-term horizon. And, of course, we will analyse these factors. But certainly, we are now taking into account financial stability issues in making our decision on the key rate. For these reasons, we will factor in the overall balance of risks. And a decrease in the key rate will be one of the options to be considered at the next meeting of the Board of Directors.
QUESTION from RIA Novosti:
What are your expectations regarding the level where oil prices may stabilise if the OPEC+ deal is agreed in its current form and how will this impact Russia’s economy?
ELVIRA NABIULLINA:
We do see that there is an overstock of oil in the market caused by two factors, and we have already talked about this. Firstly, this is a slump in demand following the decline in the global economy and the spread of the coronavirus infection. Secondly, this is a material expansion of oil supply. Any agreement, whatever it may be, will have a stabilising effect on oil prices, but this will definitely largely depend on production volumes. We expect that this deal will prevent a further decline in oil prices; yet, a rebound in prices will be driven to a great extent by the recovery of the global economy. This will largely depend on how the restrictions are lifted in various countries and how demand-side factors in the oil market are restored and influence the situation.
QUESTION from TASS Agency:
President Putin has ordered the Cabinet of Ministers and the Bank of Russia to submit their proposals on expanding the measures related to the loan repayment holidays. How is the Bank of Russia planning to expand this mechanism?
ELVIRA NABIULLINA:
The Bank of Russia, jointly with the Government, is currently working to extend the duration of these loan repayment holidays, of this mechanism. We do see—and I have already mentioned the related figures today—that in the current conditions when incomes are declining, this mechanism is in great demand among both individuals and small businesses. We will continue to monitor the situation and prepare our proposals if needed.
QUESTION from Reuters:
Which is the amount the Bank of Russia will retain after the sale of its equity stake in Sberbank? And when is the regulator going to transfer the remaining part to the budget that urgently needs proceeds at the moment? Is it possible that the discussions about the review of the cut-off price within the fiscal rule will be resumed?
ELVIRA NABIULLINA:
We will retain exactly the amount provided for by law. These figures are stipulated by law, and the money will be transferred to the budget also in accordance with the legislation. I will remind you that pursuant to the law, the Bank of Russia will recognise 300 billion rubles as its income and may use another 200 billion to cover its losses from selling banks after their resolution through the Management Company of the Banking Sector Consolidation Fund. The deadline when the funds shall be transferred to the budget will be stipulated by the Government, as provided for by law.
As to the discussions about the review of the cut-off price within the fiscal rule, I believe that they are currently irrelevant since prices (oil prices — Ed.) are now below the cut-off level.
QUESTION from Banki.ru:
Banks have already started to raise mortgage rates. How long-lasting may this trend become and what is the level where mortgage rates will touch the ceiling, in your opinion?
ELVIRA NABIULLINA:
At the moment, we do not see a mass-scale increase in mortgage rates, as well as in loan interest rates in general. A number of banks are really making relevant announcements. We have kept the key rate unchanged, but of course, banks also factor in their credit risks when granting loans to borrowers. However, we believe that even if mortgage rates rise, this will not become a long-term trend.
After all, speaking about the medium-term prospects, after we overcome this hard period caused by the pandemic, mortgage lending will continue to develop, and interest rates will become more affordable. Both medium- and long-term mortgage lending is a very promising area. And we do believe that demand for mortgage loans will grow. In the current situation, it is really essential to also support mortgage lending.
Nonetheless, demand for mortgage loans does exist and was even elevated recently. For this reason, we have introduced remote mechanisms for taking out mortgage loans, in order to make the process more comfortable for individuals. By the way, we have added housing construction on the list of the most affected industries in order to encourage banks to approve more loan restructuring applications in this sector. It is also critical to support developers in the current situation.
QUESTION from Izvestia:
This week the Bank of Russia has notified banks that it is monitoring the situation. If banks use the regulatory relaxations not to support households and businesses, but rather to increase their profit and payouts to shareholders, the Bank of Russia will cancel the easing of regulatory requirements. How frequently do you receive borrowers’ complaints about banks’ refusals to grant them loan repayment holidays because of formalities, despite the fact that they must provide deferrals pursuant to the law?
ELVIRA NABIULLINA:
As you know, the regulatory relaxations are effective either for everyone, or for nobody. First and foremost, this regulatory easing releases capital and buffers. And our objective is to make this boost and support lending, rather than secure banks’ profit and various payouts. If we find out that this is not happening, this will mean that the regulatory measures are not being used as intended. In this case, we well revise them so that banks simply maintain higher capital ratios.
As to the frequency of borrowers’ complaints about banks’ refusals to grant them the loan repayment holidays for formal grounds pursuant to the law, we are only beginning to collect these statistics. The refusals of restructuring I have mentioned were mostly refusals within banks’ own programmes. By the moment, banks have considered a very small number of applications. Predominately, the due dates (for consideration — Ed.) are next week, and we will certainly cover this issue at the next press conference. I would like to assure you that the process of consideration of loan restructuring applications is in the focus of our attention. This is currently a priority of our monitoring of banking activity.
QUESTION from Fontanka.ru:
What is the percentage of borrowers eligible to the loan repayment holidays according to the Government’s criteria? The limits of 1.5 million rubles for mortgage loans, 600,000 rubles for car loans, and 100,000 rubles for credit cards seem rather low. What was the principle behind these criteria and to what extent do you think they are consistent with the spirit of President Putin’s promise to support debt-laden households?
ELVIRA NABIULLINA:
The issue regarding these limits is within the competence of the Government. After the relevant resolution was issued, we carried out an analysis to calculate the number of people eligible to these loan repayment holidays. As to mortgage loans, this number was below one-half, which is why these limits will be reviewed, in my opinion.
I would also like to remind you that, in addition to the new law, the law providing for standard mortgage holidays continues to be effective. It stipulates the restructuring limit of 15 million rubles, thus covering a significant portion of loans. However, it is based on slightly different criteria involving a decrease in income for a longer period of time, as well as the analysis that loan payments in the next six months may exceed a certain percentage of an individual’s income. Nonetheless, this instrument is in place. Borrowers may apply for both the new and the already existing instruments.
QUESTION from social networks:
The non-work period was announced to last through 30 April. Why are loan payments not postponed automatically until the end of this period? Previously, the decision was different. What has changed?
ELVIRA NABIULLINA:
We do see that this topic is of great concern. I would like to note that this is a long period of time, and it is essential to protect the rights of both depositors and borrowers. This decision has been made to protect them. Any other decision would create material problems for the financial system and its clients.
However, the programme for the loan repayment holidays has been developed exactly for the borrowers who are now actually unable to repay their loans, so as to enable them to make advantage of the grace period.
QUESTION from Vedomosti:
You have said that if you find out that a bank is less loyal to its clients than other banks when dealing with its borrowers under the state programme for the loan repayment holidays, you will communicate with such banks on a case-by-case basis. How exactly will the Bank of Russia act?
ELVIRA NABIULLINA:
What is meant here is not that the Bank of Russia will be applying any supervisory or repressive measures. However, if banks violate the rights of consumers, specifically of borrowers, stipulated by law, their right to the loan repayment holidays, we will definitely employ all our instruments, including conduct supervision. In addition, we would like to understand the reasons behind banks’ refusals. And if the programmes require any adjustments, we will make relevant proposals to help borrowers make advantage of these programmes to the fullest extent possible in order to solve their problems.
QUESTION from Reuters:
What are the conditions where the Bank of Russia may ease regulation in a way similar to the ECB and other regulators? In other words, is it possible that the Bank of Russia will implement such measures, as the cancellation of the systemic importance capital buffer or the introduction of the negative countercyclical capital buffer, ease its approach to loss provisioning for any loans, or reduce the liquidity ratios?
ELVIRA NABIULLINA:
Firstly, we are certainly carrying out a comprehensive analysis of other countries’ experience. I would like to stress that there can be no universal recipes. All states are implementing their individual packages of measures depending on how the situation is unfolding. Nevertheless, a range of measures is the same across different economies because the list of the affected industries is broad and the list of instruments and buffers is also very similar.
Therefore, we are closely monitoring this situation and are ready to further ease regulation, depending on what becomes essential at every particular stage. For instance, as you know, we have released the buffer for mortgage loans, which was a macroprudential buffer, in order to support mortgage lending, and we are ready to consider additional measures further on. However, I would like to stress that we see no problems with capital or liquidity at the moment. If the situation changes (and there may be different scenarios), we are prepared to further ease regulation.
QUESTION from Chelyabinsky Obzor:
Due to the coronavirus pandemic, there is a surge in prices for certain products in groceries, especially for ginger and lemons. Will the rise in prices for individual food products ultimately affect the inflation rate?
ELVIRA NABIULLINA:
That is true, generally inflation is not very high in annual terms, but weekly inflation is slightly higher, exceeding the 4% target. However, this is average inflation. We are now observing that in current conditions there is a significant rise in prices for goods that are, so to say, in great demand. We do see that demand for ginger and lemons is really strong. In addition, these products are mostly imported. Moreover, ginger is not included in the calculation of the consumer basket, Rosstat does not factor in ginger prices in the inflation index, and the share of ginger in the consumer basket is rather small. The share of lemons is also small, and the contribution to overall inflation is rather low. However, the growth rate of prices for these products remains excessive. Nonetheless, we can see that imports, including of ginger, are starting to expand, for instance from China where the economy is recovering now. We also assume that elevated demand will gradually go down, and there will be no shortage of products.
QUESTION from Forbes:
What is the opinion of the Bank of Russia as regards declaring the state of emergency due to the coronavirus outbreak? Do you believe that a stricter regime could reduce the burden for businesses and, specifically, prevent an increase in companies’ debt-to-income ratios?
ELVIRA NABIULLINA:
The introduction of the state of emergency should be first of all based on the need to protect people’s lives and health. And we will take into account the decisions that may be made regarding the announcement of any particular regime. The specifics of financial institutions’ operations will also depend on the regime that may be introduced since they should perform their functions to the fullest extent possible. Of course, this will influence which measures will be taken to support financial institutions, ease regulation for financial institutions, and support borrowers. I believe that the system should be very flexible in this regard, since life and health issues are a key priority.
QUESTION from RBC:
Economists are increasingly often predicting a recession in Russia in 2020. Previously, you used to say that annual growth rates will still remain positive. Given current developments, has the Bank of Russia reviewed its forecast?
ELVIRA NABIULLINA:
Last week, I said already that, according to our estimate—which is only an estimate, and not a forecast—GDP will be in the negative zone this year. That is true, we have adjusted our estimates compared to the previous ones since the situation is changing very fast and we do see that economic growth rates will unfortunately be negative this year.
However, talking of a recession, which generally implies two quarters of negative growth rates, our basic assumption is that the major adverse effect will occur in the second quarter, while the third quarter will be better compared to the second one and will be ‘positive’ against the second quarter. Therefore, we will possibly be able to avoid a recession. I would also like to emphasise that we will soon carry out a profound analysis and will fundamentally—most likely, fundamentally—revise our forecast, so currently these are only estimates.
QUESTION from Rambler News Service:
A number of banks have limited disbursements of new loans to employees from the industries most affected by the coronavirus. Does the Bank of Russia consider that these measures are correct in today’s situation and is it going to take any actions in this regard?
ELVIRA NABIULLINA:
At the moment, banks are denying this approach, and we hope that this will not happen. Of course, banks are assessing borrowers’ creditworthiness and many other factors influencing borrowers’ solvency. Nonetheless, we will be closely monitoring the situation to avoid any violations of the interests and rights of banks’ clients.
QUESTION from TASS Agency:
The Ministry of Industry and Trade has proposed to reduce acquiring fees for the entire retail industry. Does the Bank of Russia consider this reasonable?
ELVIRA NABIULLINA:
The topic of acquiring fees is very long-standing. These disputes have been carried out for a long time. And we have also arranged discussions with banks, payment systems and the retail network. I have said many times that there are both pros and cons here. Acquiring fees help banks promote and encourage non-cash payments, but in a number of sectors these fees were definitely very high in a range of cases. For this reason, there was reached an agreement to establish reduced fees for socially important goods, a number of large transactions, pharmacies, and so on. Along with this, we initiated the introduction of amendments to the legislation for the Bank of Russia to be entitled to set the limit for these fees, if needed. And we have now exercised this right exactly in relation to online trade.
I would like to stress that we consider it critical for people to go outdoors as little as possible, staying at home as much as possible, and to have the opportunity to buy the goods they need and to pay for services. Therefore, this is becoming vital now, and the Bank of Russia has exercised its right to establish this limit. We will be monitoring how the situation will be unfolding in the future. This issue is not over, it still remains open, and we will discuss it with all the participants in this process.
QUESTION from social networks:
Why is there no decision to extend agreements on OSAGO (compulsory motor third-party liability insurance), CASCO (comprehensive motor insurance), and property insurance? How should people renew their agreements? Are you going to approve a decision on extending agreements subject to renewal in April, May and June until 1 July?
ELVIRA NABIULLINA:
First of all, I would like to say that we have been developing electronic policies for several years by now, promoting relevant amendments to the legislation, so as to launch online sales and purchases. Thus, currently most insurers already offer the option of the online extension of insurance agreements. As to those companies that have not yet launched this option, we have communicated with them and carried out surveys: they will be prepared to offer the online renewal option for insurance agreements in the near future. By the way, it is possible not only to extend, but also to execute agreements online. As to the issues requiring personal visits—diagnostic certificates and technical inspections—we have allowed the renewal of insurance agreements without such certificates.
QUESTION from Reuters:
Why did the Bank of Russia suspend gold purchases in the domestic market? Is this associated with the fact that foreign currency is needed for interventions in the FX market? When is the Bank of Russia going to resume its gold purchases from banks now that exports are actually blocked?
ELVIRA NABIULLINA:
Gold purchases have been suspended not because we need foreign currency for interventions. I would like to remind you that we purchase gold for rubles. Previously, before we suspended gold purchases, we used discounts to encourage exports by domestic companies, and the global market is quite well-developed in this area. I would not say that exports are almost blocked. That is true, there are difficulties here, and banks do report that it has become more complicated to export gold due to transportation and logistics issues. Nonetheless, exports have continued. However, there are problems emerging in this area.
We are currently communicating with banks in this regard, including to ensure the possibility to make use of storages. We have the possibility to conclude relevant contracts. However, we assume that this situation will be temporary. When is the Bank of Russia going to resume gold purchases? As you know, we do not comment on our future actions in relation to gold and foreign currency reserves.
QUESTION from Interfax:
Does not the Bank of Russia consider that there is a threat to stability that may require foreign exchange interventions? Do you believe that the fiscal rule-based operations to sell foreign currency carried out by the Bank of Russia and the deal to sell its equity stake in Sberbank are sufficient to maintain stability?
ELVIRA NABIULLINA:
At the moment, we see no threats to financial stability that would require any foreign exchange interventions. Of course, we are continuously monitoring the situation. And I would like to remind you once again that we have the entire range of all necessary instruments at our disposal to be able to secure financial stability in our economy.
Colleagues, thank you for your time and your questions. See you next week. Be healthy—this is absolutely essential!