Lending continues to recover amid lower rates

The first quarter of 2018 saw further recovery of corporate and retail lending, which also spread into higher-risk segments. This was driven by the improved performance of banks and higher economic activity.

Key rate cuts in February and March 2018 translated into loan and deposit rates, with rates on short-term loans showing a faster decline than those on long-term loans.

Credit institutions’ financial positions improved due to the stable net interest income and shrinking loan loss provisioning. That said, banks abstained from easing non-price lending conditions. Banks believe that, coupled with lower lending rates, this makes lending conditions largely neutral for all categories of borrowers.

The structural liquidity surplus remained virtually unchanged in April. As of month-end, the inflow of funds to the banking sector, intended for bankruptcy prevention of certain credit institutions, offset the outflow of liquidity that resulted from increased cash in circulation.

The spread between short-term interbank lending rates and the Bank of Russia key rate widened at the end of the averaging period amid the seasonal decline in demand for correspondent accounts.

The outflow of customers’ FX deposits slightly deteriorated the FX liquidity position.

Market participants expected the Bank of Russia to keep the key rate unchanged as early as the beginning of April. As the sanctions expanded and the ruble depreciated, individual market indicators started to reflect the expected rate increase.

Following the local volatility surge in early April, the Russian financial market stabilised in the second half of the month thanks to, among other things, internal investors’ purchases.