April 24, 2020 / 5:01 PM / a month ago

Russian central bank ready to relax terms for banks to buy state debt

MOSCOW, April 24 (Reuters) - Russia’s central bank is ready to relax the terms on which it injects cash into the banking system, it said on Friday, allowing banks to buy state debt to help fund Moscow’s fight against the coronavirus.

The government has earmarked 2.8% of gross domestic product (GDP) to fight the epidemmic and its economic fallout. Russia has so far recorded nearly 70,000 coronavirus cases and 615 deaths.

Russia had planned to raise 2.3 trillion roubles ($31 billion) this year via OFZ-rouble bonds, but this could be doubled because the budget needs more funds to support the economy, a senior government official said this week.

In addition to being hit by the economic impact of lockdowns to contain the outbreak, Russia has also been hit by a heavy fall in the price of oil, its main export.

Andrey Belousov, first deputy prime minister, has said banks could buy the bulk of an additional 1.5 trillion to 2 trillion roubles in debt, having already supported the state debt market during a sell-off last month.

Banks had wanted the central bank to extend the the maturity period of repo funds raised at auction - a source of cheap liquidity for the banking system - from the current 1-7 days, the head of state bank VTB, Andrey Kostin, has said.

Central bank Governor Elvira Nabiullina on Friday said that the bank is ready to help.

“In order to support banks’ interest towards more longer-term assets, including state (debt) paper ... we do not exclude extending repo maturity,” she said on Friday without providing further detail.

The central bank resumed repo auctions in early March and will be offering a further 500 billion roubles ($6.7 billion)at an auction on April 27.

WHAT BANKING CRISIS?

Russian banks will inevitably suffer losses from the coronavirus crisis, but the country’s banking system has enough liquidity to absorb shocks and not slip into a crisis of its own, Nabiullina also said.

The central bank cut its main interest rate on Friday by 50 basis points to 5.5% in an effort to curb the effects of the two-pronged threat of the coronavirus crisis and low oil prices.

“Is a banking crisis possible? No, it isn’t,” she said after a rate-setting meeting.

“Of course the current situation affects banks ... but they now have a real reserve of both capital and liquidity. They are better prepared for this situation (than for the 2008 financial crisis).”

Nabiullina also warned that the Russian economy could contract by 8% in the second quarter of the year.

Her comments come a day after Belousov warned that the country’s banking system could experience a build-up in bad loans in the coming months and only feel the impact later this year.

Some Russian bankers have said they expect the sector to suffer significant losses this year because of low oil prices and the pandemic. ($1 = 74.6821 roubles)

Reporting by Gabrielle Tétrault-Farber, Andrey Ostroukh, Darya Korsunskaya and Elena Fabrichnaya Editing by Katya Golubkova and David Goodman

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