Russia's central bank to stop being lombard

Russia's central bank to stop being lombard

The Russian Central Bank will reduce its Lombard list, limiting it with only federal loan bonds and state securities. The remaining securities will be accepted in the framework of the emergency liquidity assistance mechanism (ELA), but on an individual basis, the Central Bank First Deputy Governor Sergei Shvetsov said.

He stressed that the decrease in the number of securities in the Lombard list was a natural step of the regulator.

At the same time, he recalled that the bank introduced a tool for providing emergency liquidity for credit institutions, for which almost all securities will be accepted.

He also said that, according to the Central Bank, rouble liquidity in the Russian banking sector is expected to double in 2018, Interfax reports.

The head of the finance, monetary circulation and credit department at RANEPA, Alexander Khandruev, speaking to Vestnik Kavkaza, said that the Central Bank's decision will not make a real difference.

"Sergey Anatolyevich made it clear that the Lombard list is being reduced, but in case of emergency the Central Bank will provide access to liquidity. That is, it is possible that, if necessary, assets will also be accepted to support the banks," he noted.

"This is a signal that now the Bank of Russia will act as a lender of last resort only in the most urgent cases. But that's how it should be," the economist believes.

At the same time, Khandruev added that, if necessary, the Central Bank could resort to not just the emergency liquidity assistance mechanism (ELA), but also to tax-exempt lending. The Bank of Russia did not abolish tax-exempt lending, it just froze it," the expert added.

Commenting on Shvetsov's words about the liquidity surplus, Alexander Khandruyev clarified that this is mainly characteristic of large banks and banks with state participation. "And this is an unpleasant phenomenon, which means very low demand for loans from reliable borrowers, low economic activity and high credit risks that prevent a reduction in the key rate," the head of the finance, monetary circulation and credit department at RANEPA explained.

The chief economist at PF Capital, Yevgeny Nadorshin, in turn, noted that the Central Bank's decision to reduce its Lombard list, limiting it with only federal loan bonds and state securities, was quite unexpected. "Now there is no great need for liquidity in the banking sector, but it does not mean that refinancing instruments should be reduced. The Bank of Russia probably wants to reduce the risks it takes from various lending institutions," he suggested, adding that the Central Bank should nevertheless be cautious in reducing refinancing volumes, to ensure that the situations of 2004 and 2008-2008, when Russian banks faced a severe shortage of liquidity and the Central Bank was unable to provide it promptly, did not arise again.

"The problem will be especially noticeable when the Central Bank stops cutting the rate, and it will not be interesting for relatively small banks to hold substantial volumes of federal loan bonds," Yevgeny Nadorshin warned.

"Thus, this step of the Central Bank can aggravate the situation first of all for medium-sized players. They will understand that they need either to continue holding federal loan bonds at a loss or expect that they will not have access to refinancing, if the Central Bank does not refinance their securities. Of course, at the right time, the central bank will decide on an individual basis, but by then a particular bank can simply collapse," the chief economist at PF Capital concluded.