Russia cbank: reserve requirement tweak to buoy inflows

Wed Feb 13, 2013 5:34am EST

Related Topics

* Cbank to equalise foreign, domestic reserve requirements

* Sets flat rate of 4.25 pct

* Would make it easier for banks to borrow abroad

* External funding costs to fall by 70-170 bps - VTB

By Katya Golubkova

MOSCOW, Feb 13 (Reuters) - The Russian central bank's move to equalise the reserve requirements for banks' foreign and domestic liabilities is aimed at attracting a greater inflow of foreign capital, First Deputy Chairman Alexei Ulyukayev said on Wednesday.

On Tuesday the central bank announced that it was unifying the minimum reserve requirements on Russian banks' liabilities at a flat rate of 4.25 percent from March 1.

"We introduced this differentation (in reserve requirements) in 2011 when there was a certain worry about possible large cross-border capital inflows that could cause high inflation," he said.

"But we didn't encounter this, unlike the other BRIC countries, for which it became a problem. And therefore discouraging capital inflows against a background of quite a large outflow is probably not quite correct."

Capital outflows in past years from Russia have raised concerns that a poor investment climate is deterring both domestic and foreign investment. The net private sector capital outflow was $56.8 billion in 2012.

The bank's move reduces the reserve requirement for foreign liabilities from 5.5 percent, while increasing the requirement on domestic liabilities from 4 percent.

By lowering the cost of external funding relative to domestic sources of funding such as household deposits, that is expected to encourage Russian banks to increase their foreign borrowing.

In a research note, analysts at VTB Capital estimated that the change will effectively reduce banks' external funding costs by between 70 and 170 basis points.

Last year the external debt of Russian banks rose 28 percent to $208.4 billion. Russian banks issued some $30 billion in Eurobonds, accounting for two-thirds of corporate issuance.

"We consider that equalising conditions for the liabilities of banks to residents and non-residents ... is entirely normal. This will make the competitive environment (of a) higher quality, and allow a solution of cross-border capital flows," Ulyuakyev said. (Reporting by Katya Golubkova; Writing by Jason Bush; Editing by Douglas Busvine)

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