BoR Secured Loans
Main purpose of the operations
A loan is the extension of money from one party to another on a repayable basis for a certain period of time and, as a rule, for certain interest, which is based on a loan agreement.
Central banks may extend loans for various reasons. As a monetary policy tool, loans are used to regulate the volume of liquidity and steer the short-term money market interest rates. Furthermore, loans may be granted to promote the smooth operation of the payment system, provide assistance to credit institutions challenged with temporary liquidity shortages, and to restore or maintain financial stability.
The Bank of Russia extends secured loans as part of its different functions, but principally as part of its monetary policy framework. Secured loans are included in the two main groups of standard monetary policy operations — currently the Bank of Russia can practice both loan auctions and standing lending facilities.
Bank of Russia loan auctions are primarily used to manage total banking sector liquidity. The Bank of Russia resorts to these operations in case of a structural liquidity deficit to cover medium-term demand for bank reserves, including when credit institutions are short of marketable collateral.
Credit institutions may draw on Bank of Russia standing lending facilities — intraday loans, overnight loans, lombard loans and loans secured by credit claims — on any business day in accordance with the procedure established per each loan type.
The Bank of Russia also extends secured loans for other purposes, which are not associated with bank liquidity management and overnight money market interest rates steering or monetary policy as a whole.
Special refinancing facilities are aimed at supporting bank lending to certain industries or segments of the economy whose development is hampered by structural factors. The Bank of Russia has proposed the following facilities:
- Bank of Russia loans secured by credit claims on agreements backed by insurance contracts of JSC EXIAR;
- Bank of Russia loans secured by credit claims of JSC SME Bank on credit institutions or microfinance organisations or leasing companies;
- Bank of Russia loans secured by guarantees of JSC Russian Small and Medium Business Corporation;
- Bank of Russia loans secured by credit claims on leasing companies;
- Bank of Russia loans secured by credit claims on agreements for investment projects;
- Bank of Russia loans secured by bonds placed for investment project funding and included in the Bank of Russia Lombard List;
- Bank of Russia loans secured by mortgages issued under the Military Mortgage Programme.
For relevant interest rates on special refinancing facilities refer to the Interest rates on Bank of Russia special refinancing facilities section.
Starting from 1 September 2017, the Bank of Russia also extends loans under the emergency liquidity assistance mechanism (ELA). This mechanism is available for banks facing temporary liquidity shortages if other sources of borrowing, including the Bank of Russia’s monetary policy instruments, are exhausted. Funding under the ELA is provided in rubles for no longer than 90 days. The interest rate in this case equals the key rate effective as of the moment of loan issue increased by 1.75 percentage points. These loans provide for a wider range of eligible collateral than loans extended under the monetary policy framework. In order to assist systemically important credit institutions in their efforts to ensure compliance with the liquidity coverage ratio, the Bank of Russia established a lending facility under irrevocable credit lines. This facility extends loans in accordance with irrevocable credit line agreements at the interest rate that equals the key rate increased by 1.75 percentage points.
The below sections only cover loans extended as part of standard monetary policy instruments.
Secured loans are extended in compliance with Bank of Russia Ordinance No.
For operations to be carried out in accordance with the Terms and Conditions, credit institutions should duly address the Bank of Russia’s authorised division to conclude an Agreement of Participation in the Operations on the Issue and Redemption of Bank of Russia Loans Backed by Securities or Credit Claims (further referred to as the Loan Participation Agreement).
Counterparties and criteria for access to secured Bank of Russia loans
Secured loans are only issued to Russian credit institutions. The Bank of Russia sets no other criteria for concluding a Loan Participation Agreement. However, the Bank of Russia only grants loans if a credit institution’s right to obtain loans is not suspended and if a credit institution satisfies the following two criteria set forth in the Ordinance:
- The credit institution shall be included in Classification Group 1 or 2 (securities-backed loans are also extended to banks included in Classification Group 3) in compliance with the economic position assessment.
- The credit institution has no overdue liabilities to the Bank of Russia, including overdue Bank of Russia loans and interest on such loans.
Document exchange procedure
The Bank of Russia determined a list of documents to be submitted by credit institutions electronically. These documents may be submitted to the Bank of Russia in hard copy only if it is technologically infeasible to submit them electronically.
Currently, credit institutions participating in credit operations can only submit documents to the Bank of Russia electronically under the agreement for electronic message transfer relating to the transfer of funds within the Bank of Russia payment system.
The Bank of Russia determined the divisions authorised to receive these documents and the timeframe for their acceptance.
Credit institutions can submit documents to obtain loans, which are not listed above, both in hard and soft copy (given that the credit institution can submit and the Bank of Russia can receive the document electronically).
Secured loans, including intraday and overnight loans, can be transferred to correspondent accounts serviced by any division of the Bank of Russia (in accordance with the Terms and Conditions for the Issue and Redemption of Bank of Russia Loans Backed by Securities or Credit Claims — available only in Russian). The list of such accounts (aka key accounts) is determined in the Loan Participation Agreement.
A credit institution can initiate revision of the key account list by requesting the Bank of Russia to amend the Loan Participation Agreement in accordance with the procedure stipulated in Chapter 6 of the Terms and Conditions. In cases stipulated in the said Chapter the Bank of Russia can exclude individual key accounts from the Loan Participation Agreement at its own discretion.
Interest rates on loans
Interest on Bank of Russia intraday loans is not accrued; neither is a service fee charged. Interest on other loans is accrued on the principal (principal residuals) for each calendar day starting from the day following the loan issue to its actual repayment inclusive. Interest is calculated using the simple interest formula.
For relevant information on interest rates on all types of secured Bank of Russia loans, including minimum bid acceptable rates, refer to the Interest Rates section.
Loan redemption and interest payment
The redemption of loans (other than intraday loans), including early repayment of loans at a credit institution’s discretion or the Bank of Russia’s request, and the payment of related interest are made by means of debiting the credit institution’s correspondent account to which the respective loan was transferred, based on the Bank of Russia’s collection order.
The Bank of Russia can demand early repayment of loans if there are reasons to do so in accordance with Chapter 23 of the Terms and Conditions; a credit institution can initiate early loan repayment at its own discretion. In order to repay a loan before maturity at its own discretion, a credit institution should communicate this intention to the Bank of Russia in accordance with the procedure stipulated in Chapter 22 of the Terms and Conditions.
Bank of Russia loans are repaid within the established schedule.
In general, loans are repaid, including before maturity, within the main timeframe. Should a credit institution intend to use the released collateral to obtain a new loan the same day, it may apply to the Bank of Russia to change the time of collection order delivery for loan redemption or supplement the notification of early loan repayment with the respective provision.
Should the Bank of Russia request early loan repayment, it may produce collection orders at any time.
Interest on loan is repaid when the principal or its final part is redeemed (including in the case of early loan repayment). If a loan secured by non-marketable assets matures in more than 30 calendar days, interest is also repaid on the 20th day of each month.
Collateral (eligible assets)
Loans extended under the Terms and Conditions may be backed by securities or credit claims (non-marketable assets). Each loan should be secured with one type of assets only (either securities or non-marketable assets).
The Loan Participation Agreement should provide for only one type of assets eligible as collateral on intraday and overnight loans transferred to one key account. This restriction does not apply to other loans, that is, a Loan Participation Agreement may provide for one or two types of assets eligible as collateral on other loans transferred to one key account.
A credit institution may change the types of assets eligible as collateral on loans entering its key account by means of submitting a request to amend the Loan Participation Agreement to the Bank of Russia in accordance with the procedure stipulated in Chapter 6 of the Terms and Conditions.
To obtain loans, a credit institution should create one or two collateral pools for each key account (depending on the type of assets indicated in a Loan Participation Agreement). Each collateral pool comprises either securities or non-marketable assets. Chapter 8 of the Terms and Conditions stipulates the procedure for creating collateral pools.
Securities eligible as collateral on Bank of Russia loans may only comprise securities included in the Lombard list. That said, certain securities included in the Lombard list may not be accepted as collateral on Bank of Russia loans on certain days due to their incompliance with the requirements of Chapter 9 of the Terms and Conditions. The Bank of Russia posts Information on Securities Eligible as Collateral on Loans (available only in Russian) on a daily basis.
To include securities eligible as collateral in the pool, a credit institution should reassign them to the category ‘Blocked by the Bank of Russia’ of its depository account with a depository authorised to register securities eligible as collateral on Bank of Russia loans.
Credit claims are also eligible as collateral on Bank of Russia loans. The Russian Federation, Russian regional and municipal governments included in the Bank of Russia’s list and Russian corporations compliant with the Bank of Russia’s criteria may be debtors of such credit claims.
In particular, the Bank of Russia lists the main activities which can be exercised by corporations acting as debtors or borrowers for the said credit claims.
Also, the Bank of Russia has established that in the collateral pools can accept credit claims, on which amount of principal debt is expressed in the following foreign currencies: United States Dollar, Euro, Pound Sterling.
To include a credit claim in the collateral pool, a credit institution should supplement the respective request addressed to the Bank of Russia with financial statements and other information on the debtor (except for the cases stipulated in Chapter 10 of the Terms and Conditions) and regularly provide them in future (one of the cases when a credit institution does not have to provide financial statements and other information on the debtor of the credit claim is when the corporation is included in the Bank of Russia list).
In order to decide whether to include or keep a credit claim (if it requires the submission of financial statements) in the collateral pool, the credit risk of the debtor is assessed. For this, external credit ratings (if any) or the results of a credit risk assessment conducted by the Bank of Russia are used.
If a debtor does not have a credit rating assigned by national credit rating agencies ACRA (JSC) or Expert RA JSC, credit risk is assessed by the Bank of Russia on the basis of financial ratios calculated from financial statements of a debtor. The ratios characterize the debtor’s capital structure, liquidity, business activity, profitability, debt service. In addition, indicators of payment behavior and credit history of a given entity are taken into account.
A debtor meets the credit risk requirements of the Bank of Russia if it has at least one credit rating not lower than “A+(RU)” / “ruA+” according to the classification of credit rating agencies ACRA (JSC) / Expert RA JSC, or a corresponding level of credit risk estimated by the Bank of Russia (in absence of external credit ratings).
The Bank of Russia takes a decision on the request to include non-marketable assets in the collateral pool within 5 business days after its receipt.
Adjustment ratios and collateral adequacy
To manage risks on credit operations, the Bank of Russia applies adjustment ratios set for both eligible securities and credit claims.
The cost of securities eligible as collateral on Bank of Russia loans and the respective adjustment ratios are disclosed in the Information on Securities Eligible as Collateral on Loans (available only in Russian).
The cost of credit claims eligible as collateral on Bank of Russia loans is determined in accordance with the procedure stipulated in Chapter 15 of the Terms and Conditions and calculated using adjustment ratios.
The collateral on Bank of Russia loans is deemed adequate if the cost of assets accepted as collateral and adjusted for adjustment ratios equals to or exceeds the principal and interest accrued during the loan period.