The Central Bank of Russia forecasts a new outflow of deposits from troubled banks

In connection with that, the Bank of Russia intends to pump up emergency loans into them.
Origin source
The Bank of Russia introduced a new instrument for injecting emergency loans into banks that are experiencing problems, including because of the outflow of clients' money.

As the press service of the Central Bank reported on Monday, the mechanism of emergency liquidity provision (MEPL) began work on September 1. It is a loan to credit institutions due to the issue of the central bank for up to 90 days.

The list of pledges for issuing loans to the MENR is "broader than for standard instruments of attracting liquidity," the Central Bank notes: banks can take emergency loans from the regulator under security in the form of claims under loan agreements and even under guarantees of third parties (with the exception of others banks).

To seek help, the bank must provide the Central Bank with information on the reasons for which a liquidity shortage arose, the forecast schedule of inflows and outflows to the accounts, and the exit strategy from the emergency financing package.

The use of the new instrument will be available only after all regular financing mechanisms have been exhausted, including repo and loans secured by non-market assets. In other words, for MEPL banks will be able to apply only when all the assets that the Central Bank takes as collateral in the framework of its standard operations run out.

The rate for emergency loans will be 1.75 percentage points higher than the key one.

This is a "very high" level: banks will use this tool only in case of emergency, but its existence can support credit organizations surfacing in case of unforeseen outflow of clients' funds, says analyst of FC Uralsib Irina Lebedeva.

On the other hand, she adds, the mere fact of using the instrument for several months "calls into question the bank's ability to normalize the liquidity situation and return the loan to the regulator."

The Central Bank's decision to return to a practice similar to unsecured loans used during the 2008 crisis looks logical. In the Russian banking system there is a "flight to quality," says senior analyst Fitch Alexander Danilov: after the collapse of the bank "Yugra", which was in the top 20 in terms of assets, and began reorganization of FC Otkrytie, which had the status of the largest private bank in Russia, customers transfer their money from banks that are considered weak to strong private, foreign or state financial organizations.

Further clearing of the banking sector "is likely to reveal new problem banks," warns Danilov. As a result, the flight of customers can "intensify and create risks for the liquidity of some weaker private" lending institutions.

Since early July, the Central Bank has poured 611 billion rubles into the banking system through repo loans. In addition to the "Discovery", money was given, including Binbank (51 billion rubles), which for two months lost 71 billion rubles of customer deposits.

As of August 31, the banks' debt to the Central Bank amounted to 785 billion rubles, setting a record since December 2016, and for the first week of September it fell by 130 billion rubles. Probably, this is connected with the reorganization of the "Discovery": when the control over the bank passed to the Central Bank, it should again get an opportunity to raise funds in the interbank market, Lebedeva argues.

Since 2014, the state spent 3.2 trillion rubles to support the Russian banking system, Danilov of Fitch estimates. Rescue "Discovery" will cost another 250-400 billion, said on Friday, Deputy Chairman of the Central Bank Vasily Pozdyshev. Taking into account the injections already made to the bank, the amount may exceed 1 trillion rubles.

According to Pozdyshev, the owners withdrew from the bank at least 24% of the capital, giving out loans to themselves - these are the preliminary findings of the interim administration. It will work for another three months, the real volume of lending by the bank to owners may be higher.

Now we are talking about "maximizing the funds back to the bank," Pozdyshev said.