The Central Bank, worse than the “sanctions”

Presentation by Oleg Dj. Govtvan at the  French-Russian Seminar, Tuesday June 24.

Recent developments of the Russian banking system in the present context.


We must begin with a first estimate of the effects of the sanctions and of the traditional inefficiency of the Russian banking and financial system. The American « sanctions » are nothing, however, compared to the policy of the Central Bank. Everybody knows the nature of the structural errors committed by the Central Bank. The reduction of inflation remains the sole aim of the Central Bank.

The Central Bank has maintained restrictive policies for practically 20 years. True, this policy was fought against from 2002 to 2008 by means of a relatively aggressive policy of investments carried on by the public authorities. The monopolization of the markets, despite its being denounced by the Central Bank, is in reality the very product of the Central Bank’s policies.

If one looks at the rate of the RUONIA (day-to-day bank refinancing rate, over 30 banks), there has occurred a regular increase of 3% to 6% from April 2011 to early March 2014. But, after that, the Central Bank increased its rate from 6% to 8% practically overnight. The interbank market contracted strongly as a result. The lending rates to private borrowers and to companies then shot up (as Victor Ivanter said on Monday morning). The Central Bank maintains that this was necessary in order to stop speculation on the Rouble. But if this was the aim, it has not been efficient. The attacks against the Rouble in early March were countered through purchases on the currencies markets. The weapon of the RUONIA rate is not relevant here.

In the same time however, the Central Bank grants credits to the commercial banks. These consist for 50% of REPO (on the real-estate assets of large Russian companies) and for the other 50% of reverse repurchase of selected titles besides these real-estate assets, belonging to commercial banks. The question of the nature of these titles is presently coming up:


  • (1)   Investment credits, but with a ceiling of 50 billion Roubles (and a lot of bureaucracy).
  • (2)   Credits to Small and Medium Companies (probably for the same amount).

Moreover, foreign currency SWAPS have also sharply risen.

The free reserves of commercial banks, while remaining volatile over the very short term, are nevertheless tending to rise, while still not finding back to their level of before 2008. Moreover, the share of cash used in payments diminishes and we are witnessing a rise in « Treasury accounts, » which corresponds in fact to budget surpluses arising from not carrying out some of the Budget expenses.

Still, we have clearly seen a drop in liquidity at the beginning of March this year. But this drop in liquidity has been excessive and the economic actors had to put liquidity back into the economy. Presently, we have come back more or less to the situation of last year. But neither has there been an improvement in the situation, and this is largely the result of the policies of the Central Bank.

Now, it must be said that there is a very strong heterogeneity among banks, with one sector of public banks, or banks that are considered such, banks which are branches of foreign banks, and finally all the other Russian banks.

  • (a)  Concerning the banks belonging to the State, the assets of Sberbank and of VTB are generally of a better quality, and these assets are on the increase.
  • (b)   Whereas the assets of banks with a foreign participation (such as Rossbank  for instance) have a tendency to stagnate, even to decrease.
  • (c)  As for the third sector, whose share of the total of assets is low, one can notice movements at the beginning of this year. It is possible that this is an effect of the sanctions. But these effects have been immediately compensated for, and by April/May the amount of assets of these banks had returned to its level of early February.

Sanctions have therefore had an effect only on the third sector of the Russian banking system (private banks without a foreign connection). But this effect has been rapidly compensated for, be it through the strategy of these banks or by way of support from the government. On the other hand, the action of the Central Bank has had, and still has, far more negative effects upon the liquidity of the whole banking sector. The policy of the Central Bank is indeed the principal and determining factor and the one whose impact upon the economy is by far the strongest.

If the political environment remains stable, the day to day rates (RUONIA) should stay above 6%. In such a situation, it is clear that the share of the small borrowers will continue to diminish. The second rank borrowers will continue to be penalized. The credit rate will remain at a minimum, for the non-financial actors, of 12% to 13% at the nominal rate (that is, 5.5% to 6.5% in real terms).


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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