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Press conference of Bank of Russia Governor Elvira Nabiullina on 22 May 2020

22 May 2020

Good afternoon, dear colleagues

We are beginning another press conference on the current situation in the economy.

The last two weeks were characterised by more positive sentiment, which was associated with expectations for anti-coronavirus restrictions to be cancelled.

Many counties are demonstrating signs that the coronavirus pandemic is waning. Governments are starting to gradually lift or ease restrictions. This has supported a recovery in global financial and commodity markets. Stock indices are growing; risk premiums are going down; emerging market economies’ currencies are strengthening. Oil prices continue to trend upwards, with our Urals crude already approaching USD 35 per barrel, which is above the conservative assumptions our 2020 forecast relies on.

However, markets hinge on expectations and tend to run ahead of actual developments. Current data on the situation in the global economy are still not that optimistic. The USA and other western countries are experiencing growing unemployment and subdued economic activity. The Chinese economy has largely bounced back after the downturn in January—February, but remains beneath the growth path expected this year.

Russia’s industrial production contracted by 6.6% in April, year-over-year. This is less than was widely expected and less than in most other countries. Extraction industries accounting for a large portion in the Russian production sector have contained general negative developments in this area. Nonetheless, industrial output may shrink in May due to oil production cuts and the impact of secondary effects of declining end-product demand on related industries.

According to the Bank of Russia’s survey, over the period from 8 through 14 May the percentage of businesses facing order cancellations or reductions slightly decreased and remains below 50%. However, the portion of companies experiencing a shortage of working capital (34% vs 31% as of the end of April) and declining demand for their products (47% vs 45% as of the end of April) continued to grow.

Alongside with that, we are recording a notable upturn in payments effected via the Bank of Russia Payment System. The analysis of their amounts is published by the Bank of Russia every Thursday in a special review. Over the recent three weeks, the decline in incoming payments against their normal level, without account for mining, the output of petroleum products and the general government sector, remains approximately 4–5%. This is a material improvement against the 18% slump recorded in the first four non-work weeks. This recovery probably reflects, among other things, generally subdued activity in the first half of May 2019 against which we are comparing current figures, and the redistribution of a portion of payments deferred from non-work weeks in April. But even with this assumption, the amounts of payments in the economy have obviously normalised this month.

As to inflation, the acceleration of price growth caused by the weakening of the ruble and a temporary rise in demand for basic goods has probably been exhausted. Inflation stayed close to zero over the past week. Annual inflation in the last two weeks was stable, slightly exceeding 3%. This was also partially supported by the noticeable strengthening of the ruble over recent weeks amid the revival of oil prices. According to the telephone survey of inflation expectations, respondents more rarely mentioned a high price growth rate in the next month, while they still believe that inflation will be higher than at the beginning of the year. We will be able to assess the current level of inflation pressure more comprehensively only after the cancellation of a considerable portion of the restrictions affecting both production and consumption. Annual inflation will most likely increase as very low monthly readings recorded in summer and autumn 2019 are excluded from the inflation calculation. Nonetheless, it is possible to say that the effect of temporary pro-inflationary factors turned out to be not as significant as we assumed in our April forecast. Since disinflationary trends are expected to prevail in the future, the Bank of Russia has room for further easing of its monetary policy.

Judging by the market situation, risks to financial stability have slightly decreased. Non-residents’ interest in Russian shares and bonds is reviving.

The volatility indicators of the foreign exchange market are returning to normal from their increased readings. Yields on federal government bonds have dropped to their record lows. This paves the way for reducing the general level of interest rates in the economy and favours the development of long-term debt instruments.

As oil prices have risen above USD 25 per barrel, the fiscal rule-based sales of foreign currency currently performed by the Bank of Russia are limited to the amounts of the regular operations of the Ministry of Finance. As we stated in March, until 30 September the foreign currency earned through selling the equity stake in Sberbank will be sold in the market if the oil price falls beneath USD 25 per barrel so as to fully offset the resulting decline in oil revenues. As to our actions after 30 September, we will announce this closer to this date, with account of the actual situation.

The structural liquidity surplus remained almost unchanged recently. The situation with ruble and foreign currency liquidity stayed stable.

On Monday, we are launching our one-month repo auctions. As we have said before, the new one-month and one-year repo auctions are aiming to expand opportunities for credit institutions to manage their own liquidity during the period when maturities of their assets and liabilities are shifting and the distribution of liquidity in the banking system is becoming increasingly uneven. This will also help reduce the need in fine-tuning repo auctions. Furthermore, this is expected to support banks’ readiness to restructure loans without fearing that they may face a significant maturity mismatch in their balance sheets. As was scheduled, the first one-month repo auction will take place on Monday. It will amount to 500 billion rubles, which conforms to the fine-tuning repos we carried out in March and April.

I would like to stress that liquidity provided at one-month and one-year repo auctions will be taken into account to calculate the amounts of our regular (up to one week) liquidity-absorbing operations. Therefore, the new auctions will not have any material impact on the overall amount of liquidity in the system, interest rates in the money market, and the foreign exchange market.

As regards the developments in the banking sector this month, we have statistics from 1 to 19 May. Banks’ corporate portfolio remains steady. It slightly contracted at the beginning of the month, but almost fully bounced back in the second ten days of May. Conversely, retail lending shrank by another 0.4%, maintaining the downward trend recorded since April (-0.7%). This trend is the result of a more conservative approach taken by banks, the restrictions in place, and, possibly, households’ concerns about their capability to repay new loans due to uncertainty regarding their incomes.

The situation with funding is generally rather comfortable. Russian companies increased funds in their accounts by 0.3%. There is a slight decline (approximately 0.6%) in household deposits at the moment. However, interim statistics cannot be considered representative since this area usually demonstrates growth at the end of a month when individuals receive salaries, benefits and payments, while the beginning of a month is generally characterised by higher expenses, especially during long holidays. Therefore, it would be better to compare relevant readings as of the end of the month.

Now, regarding the support measures.

As to retail loan restructuring, banks received 1.8 million requests over 2 months, including 190,000 over the past week, which is less than over the last week of April. Most borrowers have already made their decisions on whether they need loan repayment holidays and submitted their requests to banks. The pace of economic recovery will show if this trend turns out to be stable, but anyway individuals may apply to banks until the end of September. The portion of approved requests has slightly increased, and we do not expect it to change materially. The percentage of approvals in mortgage lending remains the highest.

As to the restructuring of loans to small businesses, 122,000 entrepreneurs submitted restructuring applications over the two months after the launch of the programme, including 15,000 over the past two weeks. There is no downward trend in the number of requests here, in contrast to loan repayment holidays for households. The percentage of approvals over the past two weeks remained almost the same, equalling 74%. By the moment, banks have restructured approximately 11% of the SME loan portfolio (530 billion rubles). This is related to all small and medium-sized enterprises, and not only to SMEs of the most affected industries.

As regards the programme for wage loans to businesses, banks received over 58,000 applications as of 20 May for a total amount of over 140 billion rubles. More than one-half of these requests have been approved. Overall, this portion of approvals is good enough, given that 25% of credit risk is not covered by VEB.RF’s guarantee.

I would also like to remind you that last week we allocated an additional limit of 50 billion rubles for preferential 3.5% wage loans to large businesses.

More details on the progress of the support programmes are available in our weekly review Financial Pulse to be published tonight.

Thank you for your attention. I will now answer your questions.

Q&A for the Media

QUESTION from Bloomberg:

The Government is going to suspend the fiscal rule as regards limiting budget expenditures. How will this impact the extent and pace of monetary easing you are planning?


In the first place, there is currently no discussion about any principal changes in the fiscal rule itself, and moreover, about cancelling the design of the fiscal rule. The mechanism for asset accumulation and spending from the National Wealth Fund, depending on the actual oil price and the resulting deviation of oil and gas revenues from the baseline level, has proven to be efficient and helpful. In this regard, I fully support Mr Siluanov’s opinion that the fiscal rule has been implemented successfully.

There will definitely be certain adjustments due to a material shortfall of non-oil and gas revenues this year and the temporary anti-crisis measures that need to be financed. All this will require an increase in borrowings above the initial plans. In this situation, we hold that we do have some room for enlarging public debt. However, we shall not bank on it in the long run, and these funds should only be used in such extraordinary circumstances as are unfolding today.

Of course, fiscal policy itself and budget expenses are underlying factors behind our monetary policy decisions. We take into account extra budget spending each time we are scrutinising these issues at the Board of Directors’ meetings.

QUESTION from Kommersant:

Is there any connection between the Government’s plans to expand the budget deficit that are being explicitly discussed and the one-year repo auctions the Bank of Russia is going to launch? If so, what are the approximate limits set by the Bank of Russia for these operations in 2020?


Firstly, our liquidity-providing mechanisms, including the extension of repo maturities to one month and one year, are not connected with the Government’s plan to increase the budget deficit and raise borrowings. One-month and one-year operations are additional instruments to supply liquidity to banks for them to have more opportunities to manage their liquidity in such extraordinary circumstances when the maturities of their assets and liabilities are shifting. As we have already said, liability maturities are generally becoming shorter, while asset maturities are extending. Therefore, this increase in repo maturities provides more comfort to banks, including for loan restructuring, thus making them capable to engage in long-term active operations. Secondly, as to the amounts of our operations, we will announce them before each auction, and they will depend on how we are assessing the situation with liquidity in the banking sector. We will be estimating the amount of liquidity needed to maintain money market rates close to the key rate, which is the operational objective of our monetary policy. To this end, we will also employ these new monetary policy instruments — one-month and one-year repos.

QUESTION from Russia 24 TV channel:

Can one-month and one-year repo auctions have a pro-inflationary effect?


I have already said and would like to emphasise once again that additional liquidity we will be supplying to banks through these new operations will be absorbed through our conventional mechanisms, and we will take this into account when estimating the amount of liquidity that is needed in the banking system. Therefore, we do not see any additional impact on inflation in this regard or any pro-inflationary pressure. On the contrary, we believe that this will help us keep interest rates close to the key rate and enhance the transmission.

QUESTION from The Bell:

Standard & Poor’s analysts forecast that by the end of 2020 regional budgets will have a record high deficit averaging approximately 6–9%. Do you expect a record high deficit in regional budgets? Which regions may face the largest deficit? What measures may be taken to help regions offset this deficit? Is it possible that special instruments will be developed for this purpose? Does the Bank of Russia consider it possible to expand the Lombard List for a larger number of regions to be able to borrow funds that would cover their deficit?


In this situation, regional budgets, just as the federal budget, will probably be facing a more considerable deficit than in recent years. The Government is aware of this, and we can see what measures it is implementing, including the increase in inter-budget transfers for constituent territories and deferrals of future payments on budget-funded loans granted from the federal budget to regional budgets. Therefore, a temporary expansion of the deficit is definitely possible.

As regards the Lombard List, we determine its composition based on the credit quality of securities. We may adjust this Lombard List as the assessment of the credit quality of particular securities changes. As to the size of the Lombard List, it is altered depending on our actual standing, specifically on whether we have a structural liquidity surplus or deficit. Generally, when we have a structural liquidity deficit, as we did several years ago, we expand the range of securities, the list of securities. On the contrary, when we have a structural surplus, we reduce the list. Today, we have a structural surplus of liquidity. I would like to stress once again that the key criterion for putting securities on the Lombard List is their credit quality. These decisions in no way depend on who needs borrowings.

QUESTION from Reuters:

Anyway, if certain provisions of the fiscal rule are suspended for the period of 2020–2021, how will the Bank of Russia change the parameters of its operations in the foreign exchange market?


I would like to emphasise once again that we do not expect any fundamental alterations in the fiscal rule. Anyhow, the Bank of Russia will carry out its operations in the foreign exchange market mirroring the relevant operations of the Ministry of Finance.

QUESTION from RIA Novosti:

Minister of Economic Development Maxim Reshetnikov stated that annual inflation would not exceed 4% by the end of the year. How do you estimate the probability of such developments? When may annual inflation reach a local peak, given that price growth is starting to slow down?


I would like to remind you that our inflation forecast is 3.8–4.8% as of the year-end. In other words, this range also shows that we admit that inflation may be beneath 4%. However, there is certainly great uncertainty about how the situation will be unfolding further on. I would like to stress once again that we expect disinflationary factors to prevail in the future. Concurrently, we should take into account the price growth that has already occurred, as well as the actual reduction in supply we are observing since the restrictions in place have affected both demand and supply. We will be also factoring in the effect of the actual monetary easing and the budget-funded support measures in order to adjust our forecast of annual inflation as of the year-end, if needed. Nonetheless, I would like to emphasise that without pursuing loose monetary policy, as we are doing now, annual inflation in 2021 and 2022 may be below 4%, according to our estimate. This is why we have eased our monetary policy.

As to a possible peak of inflation, of annual inflation, we believe that this may happen approximately in summer.


Given today’s economic conditions, is it possible that the Bank of Russia cuts the key rate off-schedule, earlier than the next meeting of the Board of Directors to take place only in a month?


We believe that scheduled decision-making at the Board of Directors’ meetings that are planned in advance for a year ahead is one of the elements characterising the predictability of our policy. Of course, we may carry out unscheduled meetings, but they would only be reasonable in the case of any sudden changes in the economy and the financial market for the Bank of Russia to adopt appropriate decisions needed immediately. In our opinion, current circumstances do not require this, and we neither saw them in March, nor are observing them now. We can say that the situation is unfolding generally close to our baseline forecast. Actually, one month that is still ahead is probably not such a long period of time.

QUESTION from Rossiyskaya Gazeta:

Does the Bank of Russia still assume that the key rate may be cut by 1 pp in June? What is the threshold of the minimum key rate for this year, in your opinion? Is it possible that the Bank of Russia reduces the key rate to 3.5%, for instance, and under what circumstances?


The probability of the key rate decrease by 1 pp in June is actually under consideration. However, this probability is still below 100%. Which minimum shall be set? Which key rate is possible? As you know, we do not provide any key rate forecasts, but anyway the key rate level will be determined so as to be able to keep inflation steadily close to 4%. This is a fundamental principle we are relying on.

QUESTION from TASS Agency:

Does the Bank of Russia see any conditions for another adjustment of its economic forecast in today’s situation? Does the regulator preserve its preliminary forecast of an 8% GDP decrease in the second quarter?


We will be adjusting our forecast before the core meeting of the Board of Directors scheduled for July. Of course, we adjust our forecast estimates of certain parameters for all meetings of the Board of Directors, and not only for core ones, and then disclose this information following the Board of Directors’ meetings. As to our GDP forecast, there is definitely a lot of uncertainty in this regard. We are receiving fresh data. We prepared the Q2 forecast as far back as nearly a month ago. At that time, we really estimated that GDP would shrink by 8%. However, now we can already see that the actual developments in the economy in April largely coincided with our expectations for May. As of the moment, the dynamics are still weaker, and it is thus entirely possible that GDP will decline by more than 8% in the second quarter. Anyway, I would like to repeat that we will be adjusting these forecast estimates closer to the next meeting of the Board of Directors when revising our overall forecast.

QUESTION from Amur News Service:

Is it possible that inflation may rise as a result of the disbursement of 10,000 rubles per child aged from 3 through 15 announced by President Putin?


In the first place, these payouts will maintain families’ quality of life and support demand in the economy. Moreover, this measure will also push inflation closer to the target faster, but we do believe that inflation will remain under control, approximating 4%. We definitely do not expect this measure to have any material pro-inflationary effect. Anyhow, it is crucial to support families in today’s circumstances.

QUESTION from Vedomosti:

Following the last meeting of the Board of Directors, the Bank of Russia published its inflation forecast for the year-end of about 3.8–4.8%. The recent two weeks recorded zero inflation. Do you confirm the inflation forecast you published? Are you going to revise it? Will monetary policy ensure that inflation approaches the target as fiscal policy tightens in the third and, especially, the fourth quarters when the support measures are terminated? What is the probability of further monetary easing? How do you estimate the impact of the support measures on inflation?


We have not yet revised our inflation forecast. We will be doing this within the review of our overall forecast for the core meeting in July, and possibly in June, if any adjustments are needed. As I have already said, there is still a lot of uncertainty, but fundamentally it is possible to say that disinflationary factors still prevail.

As to fiscal policy, we have got more clarity after the approval of the third package of support measures, by the way. I would not speak of fiscal policy tightening in the third and fourth quarters since these support measures are quite long-term, and many of them will continue until the end of the year and, possibly, until early 2021, for instance, the writing-off of corporate loans. On the contrary, we are observing a rise in expenses aiming to support the economy. I would repeat that we will be definitely factoring in how these budget-funded support measures may impact inflation and GDP, and, among other things, will be adjusting the path of our monetary policy taking into account this influence. I would like to stress once again that we do see potential for further monetary easing.

QUESTION from Komsomolskaya Pravda:

Businesses and households are facing a shortage of money. This is proven by the figures of the Bank of Russia’s report on the numbers of loan restructuring applications from both individuals and legal entities. Do you believe it would be reasonable to increase the amounts of direct aid to businesses and households to 5–10% of GDP, as suggested by a number of experts? How may this impact inflation? What is the maximum amount of support for inflation not to exceed 4%?


First of all, these measures of direct aid to individuals and businesses are really needed. We all can see that the Government is expanding these support measures and increasing expenses for their implementation. Therefore, the amount of required aid depends on the actual situation and on how it will be unfolding in the future, on the spread of the pandemic, the pace of cancellation of the restrictions, and on how quickly individuals and businesses will start to restore their incomes. All these parameters are being monitored on a continuous basis. We are currently observing that some restrictions are being lifted. Hence, this rather concerns the adjustment of this mechanism, if this is needed. As to inflation, we will be pursuing monetary policy so as to reach the 4% target. We have all instruments to be able to achieve this, regardless of the Government’s fiscal policy stance. Nonetheless, we will be certainly factoring in fiscal policy in our decisions on the key rate path in order to keep inflation close to the target.

QUESTION from Forbes:

First Deputy Prime Minister Andrey Belousov said that the disruptions of process chains and an increase in payment defaults will become the major challenge for the economy as enterprises return to their normal operation. How serious is this problem, in your opinion? What percentage of companies may face it? What are possible solutions to this issue?


That is true; there are concerns about how process chains are working since our economy, just as many other countries, has a rather high level of specialisation. Thus, even a shortage of a minor component may affect the entire production and the output of end products. For this reason, the integrity of process chains is crucial, and the Government is undoubtedly monitoring this issue as well, in order to maintain and finance these process chains.

As to payment defaults, a lot of companies are really experiencing a decline in incomes instigated by the termination, suspension or contraction of their operations, while they are obliged to pay to their counterparties, and so on. The need to reduce the risk of payment defaults is the reason why the Government is implementing all these support measures, as well as the loan restructuring measures, because lending is a key area of payments, of debt service payments. However, we see no risks for this problem to become systemic. It should certainly remain under continuous control and be monitored in order to deliver proper decisions, which is exactly what is being done now.

QUESTION from Banki.ru:

A number of regions have already started to lift anti-coronavirus restrictions. How are the economy and consumer activity reviving in these regions? How long will the recovery take?


In the first place, it is certainly difficult now to make any accurate estimates since these regions have just started to cancel their restrictions. We are monitoring this situation, carrying out surveys in these regions. We do see improvements in economic activity there, although they are varying across regions. In this regard, it is probably possible to cite the estimates of companies themselves in the regions we are surveying.

Slightly over 60% of enterprises believe that it will take up to one year to completely restore their operations. A little more than one-third (35–36%) of respondents consider that their full recovery will require from one to three years. A small percentage of businesses fear that this process will last longer than three years. These are companies’ expectations. Of course, this will largely depend on how the epidemiological situation will be unfolding and on the pace of lifting the restrictions in place, and in this regard people’s health is definitely the vital priority.

QUESTION from Rambler News Service:

The amount of cash in circulation has increased. When does the Bank of Russia expect households’ funds to return to deposits?


That is true; the amount of cash in circulation has really grown. This has happened primarily because households were stocking up with cash both to make purchases in advance and to prepare for the self-isolation period. Banks were stocking up with cash to be capable to supply money to all their ATMs during the period of such high demand. This has really happened. Today, we can see that the growth of cash in circulation is gradually slowing down, and we are confident that the situation will be normalising. Even now, we may not say that it is abnormal — merely, the amount of cash in circulation is slightly elevated.

QUESTION from Interfax:

Is the Bank of Russia considering the possibility for reducing the maximum exposure per borrower (N6) or the maximum exposure per a bank’s affiliates (N25)? Do you support the relevant suggestion of Rosneft’s CEO Igor Sechin?


Firstly, we already have reduced ratios for a range of large borrowers, primarily for natural monopolies. Furthermore, we have decided to postpone the introduction of the N30 ratio, which is the maximum concentration of major credit risks, until 1 January 2022. However, the regulation of the N6 and N25 ratios is a principal element in our banking regulation supporting financial stability and the sustainability of individual financial institutions. We can see that banks themselves are very responsible in tackling this task, opting for an even tougher approach to regulate their maximum exposure than this is required by our ratios, since they comprehend that excessive exposure may augment risks for banks themselves. Nonetheless, we are aware that there are large borrowers, major corporates, that need loans. In my opinion, a promising area in this case is syndicated lending which is still underdeveloped in Russia. This distribution of risks among various borrowers and risk diversification by creditors will help in dealing with the issue of how to increase lending to large borrowers without creating additional risks for particular financial institutions.

Secondly, it is essential to develop the bond market, including for a broad range of investors, and not only for banks. In our opinion, it is certainly possible to use state guarantees in this area. Therefore, we believe that there is no need for any fundamental changes in the N6 and N25 ratios.

QUESTION from Vedomosti:

Will the Bank of Russia earn profit by the end of 2020? If yes, what are the sources? If no, what are the reasons?


The Bank of Russia’s financial performance depends on multiple factors. As to the two factors inducing losses in the past, they have almost tapered off. These are primarily our expenses for financial resolution and direct payouts of dividends from Sberbank to the budget when the Bank of Russia held an equity stake in Sberbank. Moreover, losses associated with the structural liquidity surplus will also decrease, including as a result of the Sberbank deal. Nonetheless, the structural surplus itself still remains over the forecast horizon, and thus continues to be a factor of costs. This year will be challenging, but at least we do not expect a rise in losses.

QUESTION from BankNN.ru:

How would you assess the level of banks’ preparedness to the implementation of online technologies? What problems have been revealed as a result of the self-isolation period?


Generally, banking technologies are sufficiently advanced in Russia as compared to other countries, including mobile and online banking which are very well developed. Of course, not all of them have been transferred to the remote mode, specifically client identification for opening accounts and conducting transactions. If our Unified Biometric System we have started to develop functioned on a full scale, it would certainly be much simpler for individuals to receive financial services in today’s situation, without the need to visit banks’ offices. In addition, the self-isolation period has revealed the following issue: if there is a particular service, e.g. for obtaining a mortgage loan, it is not enough to have only a part of remote operations for its delivery — an organisation should be capable to render the entire service remotely. This is related not only to banking regulation, but also to the digital registration of real estate title, for instance. Therefore, it is essential to consider all these services in general and enhance digital technologies. The self-isolation period has shown that we should develop digital finance faster. This is comfortable for people and, moreover, reduces costs. This is why it is definitely our strategic area.

QUESTION from Izvestia:

Does the Bank of Russia already have a candidate to be nominated to Sberbank’s Supervisory Committee?


We have not made a final decision yet, and are currently holding consultations with the Ministry of Finance.

QUESTION from TASS Agency:

There is a widespread opinion today that it would be reasonable to extend the 6.5% preferential mortgage lending programme until the end of the year. What is the Bank of Russia’s opinion in this regard? Will this measure help support the construction industry? Are there any additional mortgage support measures under consideration?


In my opinion, this preferential lending programme has already proven to be successful and highly requested, although it has just been launched. We believe that this programme is quite promising. The question is whether it will be extended. After all, it is being subsidised by the Government. Accordingly, this decision is within the competence of the Government, and I hope it will scrutinise this issue. If the Government put forward such a proposal, we would undoubtedly support it since we can see that this programme both maintains households’ demand for mortgage loans and, certainly, indirectly aids the construction industry.

As to additional mortgage support measures, we have already said earlier that the Bank of Russia is going to implement Basel III ahead of schedule, largely following banks’ requests. This international standard implies more flexible approaches and lower requirements for capital in mortgage lending. I would like to remind you that banks are often complaining about Basel III, but this standard also comprises such components that they are urging us to implement faster. We are really going to implement these components ahead of schedule.

QUESTION from Bloomberg:

Today, the Bank of Russia announced the revised structure of its Monetary Policy Department. It will now be supervised not directly by the Bank of Russia Governor, but by the specialised Deputy Governor. What are the reasons behind this decision? Is it possible to say that the Bank of Russia is undergoing an administrative reform, given that this week it also announced the establishment of two new departments? What is the purpose of this reform, and what other changes can be expected in the Bank of Russia’s structure?


As to the first question about the specialised Deputy Governor responsible for monetary policy issues, that is true, I have been in charge of these issues, but I have also been searching who could become my deputy in this area. Alexey Zabotkin heading the Monetary Policy Department has demonstrated his professional excellence and capabilities to organise a solid team. Therefore, I hope that these modifications will enhance this block even more.

Regarding the question whether the Bank of Russia is undergoing an administrative reform, I would not use exactly this term. The Bank of Russia is continuously improving its operation, its structure, and above all, its business processes. We are analysing our business processes on an ongoing basis in order to increase our performance. In the first place, we are striving to strengthen our client focus, including the efficiency of our decisions on the regulation of services we are delivering to market participants. To this end, we are continuously analysing our business processes and reengineering them, which often requires alterations in the organisational structure. The Bank of Russia’s structure follows the development and advancement of our functions. Therefore, it would be incorrect to speak of a certain period or campaign. This is a continuous process in the Bank of Russia. This does not mean that we will be establishing new departments on an ongoing basis, but we will definitely be making relevant decisions, when this is needed.

QUESTION from RIA Novosti:

The Federation Council has proposed the Government create a fund of bad assets to which banks would be able to temporarily sell bad debts induced by the pandemic, undertaking the obligation to buy them back. What is your opinion about this proposal? Will such a fund be needed during the current crisis?


In my opinion, there are currently no substantial reasons to ponder the establishment of a fund of bad assets. According to international experience, such banks and funds are created when bad debts accumulate in such an amount that may entail certain risks to the financial stability of the entire system. In order to avoid the accumulation of problem assets in banks’ balance sheets, we are taking actions in two major areas.

Firstly, the Government is providing extensive aid to businesses that are borrowers for them to be capable of restoring their activity faster, thus preventing bad debts.

Secondly, the Bank of Russia has granted a range of regulatory relaxations enabling businesses to recognise losses spreading them over time. Furthermore, we assume that a part of banks’ borrowers or a part of assets that temporarily seem to be bad may restore their credit quality later on, after the problem period ends. Therefore, as regards assets, eventually banks will really have to recognise their actual quality and create additional loss provisions, while a part of assets will probably not require any extra provisioning. This is why we do not think that we have this problem at the system level. I would also like to remind you that the financial system and banks have accumulated buffers that may be employed as such losses are revealed in order to prevent these risks.

Generally, such funds are established using budget resources. In our opinion, it would be more efficient to allocate budget funds in order to provide direct aid to individuals and particular companies, which will ultimately help prevent an increase in bad debts.

QUESTION from Interfax:

Owing to high demand among investors, Russia’s Ministry of Finance managed to place federal government bonds to a record amount of 169 billion 600 million rubles over only one auction day. Don’t you think that we are using too fast our potential for expanding public debt you were speaking of earlier? Won’t this entail the risk of overheating in Russia’s public debt market? Doesn’t this involve the risk that an excessive increase in public debt may limit our future opportunities to provide funding needed to support economic growth?


I would like to emphasise once again that we do have potential for expanding public debt, in my opinion. This is why we may increase it. As to the pace of this growth, that is true, it seems to be faster than it is common for us. Still, our public debt is enlarging not faster than in other countries, and even more slowly. According to our estimates, the rise in borrowings needed to support budget spending during this challenging period will not cause a material increase in public debt in general. Even after borrowings grow, the amount of Russia’s public debt will still be one of the lowest worldwide. I believe that one of the reasons why investors’ interest stays high is that they understand that our macroeconomic policy, including fiscal policy, will remain stable after we overcome this hard period of time. Hence, I see no risks in this regard, and would not say that this growth of public debt is excessive.

QUESTION from Financial One:

Which financial instruments should be available to non-qualified investors, in the Bank of Russia’s opinion? Will this list comprise exchange-traded funds (ETFs) tracking foreign stock indices? Should newcomers avoid structured or investment-grade bonds that are currently being extensively offered to individuals?


Taking advantage of this question, I would like to emphasise once again that we should have the regulation in place that will limit risks for non-qualified investors, for newcomers in the financial market, while, certainly, enabling them to harness all the benefits of investing in financial instruments.

As to investment-grade bonds, we believe that they should be available to non-qualified investors, but only after testing. Regarding structured bonds, non-qualified investors currently do not have access to them. However, structured bonds may differ: some are structured so that they involve very low risks, while others are associated with rather high risks. If, jointly with the market community, we manage to define the criteria enabling differentiation between low- and high-risk structured bonds, they may be made available to non-qualified investors, but only after appropriate tests.

As regards ETFs, we also believe that non-qualified investors may have access to them, but only after testing.

QUESTION from Kommersant:

Does the Bank of Russia support the opinion of the Ministry of Economic Development forecasting that the ruble will weaken by the end of 2020?


As you know, we do not provide any exchange rate forecasts. We have a floating exchange rate, and as the Central Bank we may not set any targets here.

QUESTION from Reuters:

Which recommendation will the Bank of Russia’s representative give to Sberbank’s Supervisory Board? Should Sberbank make dividend payouts for 2019 or not?  If yes, what percentage would be reasonable, in your opinion?


We consider it essential today to postpone this issue until autumn, at least until late August — early September, for us and, above all, for banks themselves to get more clarity about future developments and the level of losses that they are and will be facing. This is also critical for them to have time to estimate the amount of capital they will need to absorb these losses. Accordingly, such decisions should only be made after a scrupulous analysis of the situation. It would be too early now to give any recommendations. Therefore, we recommend that banks postpone their decisions on dividend payouts to later dates when we get a little more information for making such decisions.

QUESTION from Izvestia:

At a recent meeting, President Putin announced a new measure to support employers, specifically loans at a subsidised interest rate that will be written off almost completely, provided that jobs are preserved. Will this involve an extra burden on banks, or will such loans be fully budget-funded?


First of all, this programme establishes the 2% rate for ultimate borrowers. This is a low interest rate, and virtually, a negative real rate, given the inflation forecast. It should be attractive for businesses. As to the level of subsidising, we believe that it should make banks interested in granting such loans and, consequently, make these loans affordable for a large number of economic agents.

QUESTION from TASS Agency:

Does the Bank of Russia consider it necessary to expand the terms entitling individuals to receive loan repayment holidays? It was earlier reported in mass media that there is a discussion about the possibility of granting loan repayment holidays based on outstanding debt, and not on initial debt amounts. Is that true? Is there any discussion about the introduction of overdraft repayment holidays for businesses?


Regarding the expansion of the terms for providing loan repayment holidays to individuals, this issue is within the competence of the Government that establishes the maximum limit for these loans. On our part, we can see that the percentage of approved requests for mortgage repayment holidays is the highest; the portions of approvals on consumer loans and credit cards are also sufficiently high, approximating 70%; while the progress of approvals of car loan repayment holidays is low. Hence, in this case we should rather discuss the terms for car loans. If the Government is ready to discuss this issue, it would then be possible to study best options of how to do this. If holidays are granted based on outstanding debt, this will require amendments to laws. Otherwise, initial debt amounts should merely be raised. In this case, this is the competence of the Government.

As to overdraft repayment holidays, we have recently sent an information letter to credit institutions reminding them that overdraft repayment holidays shall be provided pursuant to law both to individuals and legal entities.

QUESTION from Bloomberg:

Can the Bank of Russia switch to negative real interest rates as it was in 2009 and 2015? Is the Bank of Russia considering this option to stimulate the economy?


In the first place, we never switched to negative rates in 2015 after all. As far as negative interest rates are concerned, it is essential to talk of the expected real rate, that is, of the interest rate calculated based on expected inflation. In this regard, we never had negative real rates in 2015. On the contrary, they were significantly positive; our goal was to reduce inflation, and we were pursuing moderately tight monetary policy.

In my opinion, the comparison against 2009 would be entirely difficult since the regime was completely different, with a targeted exchange rate. Therefore, any correlation in this case would be inappropriate.

I would like to stress once again that we determine the pace and the level of interest rates so as to be capable of achieving our inflation target close to 4%. Anyhow, the Board of Directors believes that there will be no need in the foreseeable future to switch to negative interest rates in the baseline scenario.

QUESTION from Interfax:

The Bank of Russia has carried out the assessment of potential buyers of the Asian-Pacific Bank. What are the findings of this assessment? How many bidders conform to the requirements? Does the Bank of Russia still intend to sell this bank in 2020, given the current economic and epidemiological situation?


We are currently accomplishing our assessment of potential investors and offers for the sale of the Asian-Pacific Bank. Of course, the economic situation has altered drastically. In general, we certainly intend to sell this bank. As regards possible decisions for this year, we will announce this a little later, when we complete our analysis.

This conference is now over. I would like to thank you for your questions.
Our next press conference will take place in a fortnight, on 5 June.
I wish you all good health! See you soon.

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