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. Last Updated: 07/27/2016

Banks Hail Eased Reserves

Russian bankers Sunday hailed lower reserve requirements on their commercial deposits but said the new Central Bank guidelines would not resolve the liquidity problems faced by the industry.


The decision, which became effective May 1, trims reserve requirements on ruble deposit accounts from 20 percent to 18 percent, while the amount of money allocated by banks for operating hard-currency accounts was cut from 1.5 percent to 1.25 percent.


"This is a positive step but we've got to see how the banks will react to the new strict penalties for noncompliance," said Vladimir Rodushkin, deputy head of the banking department at the Association of Russian Bankers.


Bankers had bitterly fought a previous hike in reserve requirements imposed by former Central Bank chairman Tatyana Paramonova, but her replacement, Sergei Dubinin, had signaled a relaxed line.


"These measures should be severe enough to cool off the heads that would like to take the Central Bank's requirements as a joke," said Pavel Gorbachev, deputy chairman of Alfa Bank. But, he added, "the danger [of a banking crisis] is gone only when we will have a group of really stable banks."


Sergei Alexashenko, first deputy chairman of the Central Bank, said last month that tough measures will be applied to commercial banks violating the new ruling, including fines on overdue payments of up to two times the Central Bank's refinancing rate, currently at 120 percent.


The overall size of the reserve fund should amount to 28 trillion rubles ($5.8 billion), while the actual sum paid in by the banks totaled only 21 trillion rubles in April, Alexashenko said.


Rodushkin said the ARB has called on the Central Bank to give the commercial banks some time to adapt to the new strict rules


"Banks that find themselves in that situation will be hit really hard," he said.


Analysts have said the new rule will give banks more breathing space and avoid a repeat of last August's liquidity crisis that paralyzed payments on the interbank credit market.


Commercial banks have pressured the Central Bank to ease reserve requirements for the past three years, citing the Western banking industry where allocations to reserve funds are on average half those in Russia, Rodushkin said.


"This money is simply taken out of the bank's operations," he said. "I don't think the Central Bank just keeps it in its vaults, this money is obviously used for budget purposes and purchase of hard currency."


The Central Bank reserve fund was set up to compensate customers in case a bank became insolvent, but until now banks facing difficulties previously were not allowed to use money from the reserve fund, Rodushkin said. Now, they may apply to use a small portion of their contributions.


"In general, we'll continue to press for further reduction of reserve payments," he said.


But the measure will not save the Russian banking system from the ongoing crisis, because stronger banks are taking the lead on the financial market, Gorbachev said.


"There will be no need for restrictive measures when we see a group of stable banks emerging," he said.


Russia currently has about 2,285 active banks, down from some 2,700 two years ago, while a further 313 lenders are officially registered but no longer active as their licenses have been revoked, according to the Central Bank.