Bank of Russia changes irrevocable credit line parameters
The Bank of Russia Board of Directors has decided to change the parameters of an irrevocable credit line (ICL) that the Bank of Russia opens for systemically important credit institutions (parent credit institutions and (or) banking group participants) (SICIs) starting from 1 April 2021 under an ICL agreement1:
1. The fee for an ICL opening from 1 April 2021 is set as follows: from 1 April 2021 to 30 September 2021 — 0.15% per year of the maximum ICL limit set for SICIs (parent credit institutions and (or) banking group participants); starting from 1 October 2021 — 0.5% per year of the maximum ICL limit set for SICIs (parent credit institutions and (or) banking group participants). For ICLs opened earlier, the fee will be kept unchanged until their expiry.
2. From 1 April 2021, the maximum total limit for ICLs will be 4 trillion rubles.
In making its decision to change ICL parameters, the Bank of Russia recognised the following factors.
The current ICL parameters are the fee of 0.15% per year and the maximum total limit for ICLs of 5 trillion rubles. The said parameters were set in March 2020 to support SICIs amid spreading coronavirus. These measures were temporary, and they will expire on 31 March 2021.
While they were effective, the situation with liquidity in the Russian banking sector has improved. The volume of financial instruments qualifying as high-quality liquid assets (HQLA) available in the market is sufficient to be purchased by SICIs willing to comply with the liquidity coverage ratio (LCR). It is also expected to grow further.
According to Bank of Russia estimates, the overall liquidity surplus in the banking sector2 will remain in the near term. Supply in the OFZ market will also expand. In line with the OFZ issue plan3 of the Russia’s Ministry of Finance, the market will expand by 7.1 trillion rubles in
The Basel Committee on Banking Supervision standard4 stipulates that additional liabilities (assets) — namely the ICL limit — can be included in the LCR numerator to balance the existing deficit of HQLA in national currency in the financial system. Still, additional liabilities (assets) are not an instrument to quickly manage the LCR actual value. Therefore, for the next few years, the preferred approach to observe the LCR is to compose its numerator of the sufficient amount of HQLA.
To replace opened ICLs with market instruments qualifying as HQLA, the decision was made to stop the provision of low-fee (0.15% per year) ICLs established as an anti-crisis measure, and to bring the fee back to the normal level of 0.5% per year. To give SICIs room for adapting to the pre-crisis fee, this measure will come into effect on 1 October 2021 for ICLs to be opened starting from 1 April 2021.
Along with returning to the pre-crisis fee, it was also decided to lower the total limit for ICLs. The actual volume of opened ICLs equalled 2.8 trillion rubles, as of 1 January 2021. It means that current total limit is excessive as compared to the volume of opened ICLs (including those opened in 2020), that is why from 1 April 2021 the overall limit will be set at 4 trillion rubles.
Moreover, the plan to reduce individual limits, stipulated by Bank of Russia Order No. OD-3439, dated 3 December 2015, ‘On Measuring the Maximum Limit of the Irrevocable Credit Line’, will come into effect on 1 April 2021. To support lending to the economy during the recovery from the pandemic and to make it easier for SICIs to comply with the LCR using the market, the Bank of Russia intends to amend the said Order by increasing the weighing ratio from 70 to 85% for the period from 1 April 2021 to 31 March 2022, as part of the plan to reduce individual limits.
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 Monetary Policy Guidelines for
3 See Fiscal and Customs Policy Guidelines for 2021 and the Plan Period of 2022 and 2023 (approved by the Russian Ministry of Finance).
4 Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools (January 2013).
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25.02.2021 17.45.00