Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 24 April 2020
Today, the Board of Directors has decided to cut the key rate by 50 bp to 5.50% per annum. This implies that we have switched to accommodative monetary policy. Moreover, we hold open the prospect of further key rate reduction if the situation develops in line with the updated baseline forecast of the Bank of Russia.
Our today’s decision is based on the profound revision of our view of economic development and inflation trends in the next three years.
Since the last Board of Directors’ revision of the key rate, three events have happened which have defined our view of the situation. They are primarily associated with the spread of the coronavirus pandemic. Firstly, this is a drastic decline in the global economy. Secondly, there has been another round of a slump in oil prices, despite the new OPEC+ deal. Thirdly, the Government has introduced nation-wide restrictions. As a result, a large number of businesses have suspended their operations or switched to the remote work mode. A lot of citizens are currently in self-isolation.
As to positive factors, I would focus on a slight stabilisation in global financial markets as compared to March, which was largely driven by measures being implemented by the central banks of reserve-currency countries.
Therefore, given all the developments, we have completely reviewed our economic forecast. Our today’s decision relies exactly on the forecast, and not on the latest statistics we are receiving. The statistics still show the previous month’s situation and cannot provide a clear view to estimate further trends. Building our forecast, we were rather taking into account leading indicators of the economic situation, including data on electric power consumption, financial flows, household spending, as well as the experience of other countries where the pandemic has been spreading for a longer period.
I will now dwell on the main assumptions behind our baseline forecast.
Our forecast relies on a conservative view of oil prices, especially in 2020. We assume that they will be slowly growing from the average level of USD 15 per barrel in the second quarter to USD 25 per barrel in the fourth quarter. There are large oil stocks accumulated, with a downfall in global demand. This will limit the recovery of oil prices, even if the new OPEC+ agreement is fully complied with. Further on, oil prices are expected to gradually rise to USD 45 per barrel in 2022 as global demand picks up and oil stock levels decrease.
Another key assumption of our forecast is the duration of the coronavirus pandemic and the restrictions implemented in Russia and abroad. Our estimates suggest that governments will be gradually lifting or considerably easing the majority of current restrictions in the second quarter. In this case, we can expect that in the third and fourth quarters economic activity will be recovering quarter-on-quarter.
The economic situation will be returning to normal step-by-step. The direct adverse impact of the restrictions primarily falls on this quarter, while their secondary effects will continue to manifest in the future. According to our surveys, over 80% of the businesses across various industries have been experiencing the influence of the coronavirus pandemic and current restrictions. Companies’ business sentiment has materially declined. It will take time to restore business processes, logistics and production chains, offset the reduction in profit and revenue, build up reserves and savings that have been used to a greater or lesser extent over the second quarter. Combined with uncertainty regarding potential changes in the external environment, this will limit production, investment and consumer activity. In these conditions, GDP will shrink year-on-year in the third and fourth quarters, that is the annual rate of economic growth will be negative.
According to the Bank of Russia’s forecast, GDP will overall decrease by
Economic growth in
An upturn in the economy and domestic demand will also be driven by the easing of monetary conditions resulting from the monetary policy pursued. This will support lending, and its growth rate will rise from
According to our estimates, the easing of monetary policy is needed to maintain annual inflation close to 4% over the forecast horizon. The slump in domestic and external demand this year will be considerably containing inflation, which induces the risk of its substantial deviation downwards from the target in 2021 and over a medium-term horizon if no additional monetary policy measures are introduced.
The disinflationary pressure of weak demand will offset the effect of temporary proinflationary factors, that is, the ruble weakening and the observed elevated demand for individual products, already this year. We believe that a rise in inflation expectations caused by the above factors will also be temporary.
We expect that the impact of limited demand on inflation will be stable and long-lasting. Given the transmission lag of monetary policy, we should take actions already now. Based on our forecast, annual inflation will reach
As to the balance of payments, we expect that the current account balance will decline to negative values in 2020 and 2021 (to USD 35 and 18 billion respectively). This will mainly result from the slump in exports caused by the reduction in external demand and in export revenues, primarily from oil sales.
I would like to point that the temporary switch to a current account deficit is an expected effect produced by the considerable oil price downturn under the influence of the fiscal rule. Receipts from fiscal rule-based foreign currency sales make it possible to support the economy and domestic consumption. In this situation, imports are contracting to a lower degree compared to exports driven by the decline in oil prices. As a result, the current account balance will drop to negative values. In 2022, when the oil price exceeds the cut-off level, the current account balance will return to positive territory and the accumulation of reserves will be resumed via fiscal rule-based foreign currency purchases.
We do not expect a noticeable change in the private sector financial account balance over the forecast horizon. According to our estimates, the private sector financial account deficit will reduce from USD 18 billion in 2019 to USD 15 billion this year. This is linked to decline in GDP, decrease in economic revenues, as well as less possibilities for borrowing in foreign markets at the end of the first quarter — the start of the second quarter amid intensified volatility and uncertainty. Further ahead, as global markets stabilise, the potential for external bollowings will recover and this will pass through to a reduction in the private sector financial account deficit to USD 10 billion in
This baseline scenario, without doubt, has many uncertainty factors. They concern both the duration of the restrictions in Russia and worldwide, and the pace of recovery of the global and Russian economies. Besides, new spikes of volatility may occur in global financial and commodity markets. Therefore, in our discussions of the key rate decision and its path, we have a proper regard to the objective of sustaining financial stability.
As I noted, the baseline forecast incorporates only the fiscal decisions already made by the Government. We assume that further on the situation may require additional decisions to support the economy. This will foster an alleviation of effects of the restrictions for households and businesses, accelerate the return of economic activity to normal, and also mitigate the risks of inflation deviation downwards from the target over the next quarters. In the course of our key rate discussions, we considered model estimates of the influence of such additional fiscal measures on GDP, inflation and the monetary policy path.
We will certainly consider possible developments in fiscal policy, in the Russian and global economies in the course of further adjustments of our baseline scenario. Nonetheless, our current analysis suggests that virtually all possible scenario variants allow for monetary policy easing, including amid a certain additional expansion of fiscal measures designed to support the economy.
The Board of Directors proceeds from the existing potential for cutting the key rate and discussed possible options at the current and next meetings. The discussion concluded that given such extraordinary developments, it may not prove sufficient to adjust our policy by employing the small-step method we used. To return inflation to the target and stabilise the situation in the economy, we may need to implement more decisive measures. At our today's meeting we have decided to cut the key rate by 50 bp to 5.50% per annum. We continue to see the potential for the further easing of monetary policy at our next meetings.
I would also like to note that, given the key rate change, we have decided to cut from 4.0% to 3.5% per annum the interest rate under the new Bank of Russia's SME lending support facility introduced several weeks ago. We believe this will help to additionally improve the affordability of loans for small and medium-sized enterprises, which were affected the most by hardships.
And a few words in conclusion. The current situation specifically requires timely and even forward-looking decisions so that we are able not only to curb negative trends in the economy, but also to set grounds for a faster normalisation of the economic situation after the withdrawal of the restrictions. This will influence both inflation dynamics and the economy recovery path. Therefore, the Bank of Russia is monitoring the effects of its earlier decisions promptly and on an ongoing basis, and stands ready to take further steps, both in the monetary policy sphere and in the areas of its activity.
Q&A for the Media
QUESTION from RIA Novosti:
According to the press release, GDP will decline in the second quarter this year. How deep may this drop be in the second quarter? May it reach double-digit values? At one of past press conferences, you mentioned that it would be possible to avoid recession this year. Do you retain this forecast?
ELVIRA NABIULLINA:
Indeed, our baseline forecast holds that the main decline in GDP and its main impact will fall on the second quarter. According to our current estimates, in the second quarter, GDP may drop (in annual terms — editor’s note) to 8%, which will be further replaced by a gradual economic recovery. This is why the third quarter will be better than the second one, and the fourth quarter will beat the third one. Nonetheless, the economic recovery will be gradual, with the drop to be sustained in the second quarter not offset either in the third or in the fourth quarter. Therefore, we expect negative economic growth rates overall for the year, I have already mentioned the numbers. If the third quarter turns out better than the second one, we will be able to avoid recession. This is our baseline forecast.
QUESTION from Interfax:
When will quarterly and annual GDP growth rates move to positive territory again? What is the reason for the Bank of Russia's optimism regarding
ELVIRA NABIULLINA:
Speaking on quarterly quarter-on-quarter growth rates, our baseline forecast implies a transition to positive growth rates QoQ in the third quarter. However, annual growth rates will remain negative this year. In 2021, they will become positive. I do not view this estimate as super optimistic because in 2021 the economy will recover. But all the same, it will not be able to fully offset the economic slump of 2020. We proceed from the assumption that restrictions will be withdrawn gradually, one at a time, and in different ways across different regions. We will clarify our forecast as the situation develops. In this setting, much really depends on the pandemic evolution and, naturally, on the performance of these restrictions. There are lots of uncertainties. But I have already told you what our baseline forecast is.
QUESTION from Izvestia:
Today, you have published only the baseline scenario. You mentioned that the Board of Directors would consider all of them. What oil indicators were factored in in the pessimistic and optimistic scenarios, what is the likelihood of the baseline scenario’s materialisation?
ELVIRA NABIULLINA:
It is true that we have considered different options, but the aim was to work out a vision of the baseline scenario and to select specific assumptions for this scenario. As a result, we selected rather conservative oil price estimates and a certain trajectory of the economic recovery, on the basis of which we built our estimates. As announced previously, we are going to revise the risk scenario this autumn. It is clear that our old scenario is no longer relevant. So far, we intend to consider it by autumn. As for now, we are operating under the baseline scenario.
QUESTION from Kommersant:
Does the Bank of Russia see stagflation — a combination of recession and inflation markedly above the target of the Central Bank — as a real option for the Russian Federation over a two-year horizon? What conditions are likely to make this scenario probable?
ELVIRA NABIULLINA:
We don't view this scenario as unrealistic. The fact is that the BoR is pursuing inflation targeting policy, and we are not going to abandon it. This means that we are going to keep inflation in check and we will not allow its meaningful and lengthy deviation from the target. Therefore, we do not see any stagflation risks associated with high inflation and low economic growth rates. We do not believe this scenario is probable.
QUESTION from Reuters:
Analysts expect a further key rate cut by another 100 bp this year. Do the BoR’s key rate options allow for such a path or for its further drop?
ELVIRA NABIULLINA:
I’d like to reiterate that we are all aware of the potential for monetary policy easing. The question is how fast and when exactly we may use this potential. We believe in the real existence of the potential for key rate cutting, including in the range of 100 basis points. However, this will largely depend on the situation development, and we think that the potential for easing will materialise to a greater extent when we complete the period of restrictions. Now that many enterprises are closed, their staff are staying indoors, and there are mainly supply-side restrictions in place, it may turn out less efficient to incentivise demand now compared to the end of the period of restrictions. And it’s absolutely doubtless that demand will have to be incentivised. We expect a considerable decrease in aggregate demand.
QUESTION from Vedomosti:
What is the measure of the effect of anti-crisis support measures on GDP in 2020 according to the BoR’s macro forecast; to what extent do they constrain decline in the economy, and how will the central bank adjust its macro forecast as support measures expand?
ELVIRA NABIULLINA:
The Government has in fact announced a whole complex of support measures designed to help citizens, businesses, which we have taken into account. The assessment of their impact on GDP will undoubtedly be adjusted as these measures’ efficiency is refined. According to our current operative estimate, support for GDP from the announced measures stands at around 2%. In other words, in the absence of these measures the downfall would certainly be more profound. Therefore, we will stand ready to adjust our macro forecast as these measures broaden. We adjust our macro forecast each time in the run-up to the next core meeting and we will be ready to do it in July.
QUESTION from Bloomberg:
Global policy rates are declining materially, the Bank of Russia is also easing its policy, is it therefore going to revise the range of the neutral rate from
ELVIRA NABIULLINA:
Let me to repeat once again that the neutral interest rate is not an observed value, it may only be estimated approximately, and it is shaped by various factors. Definitely, there are factors that are bound to make us lower our estimate of the neutral rate. Global interest rates are already lower than broadly expected. At the same time, we see that risk premiums, including risk premiums for emerging markets, are going up; consequently, there is much uncertainty here. We believe it is not necessary to review our estimates of the neutral rate now. We preserve the range of our previous estimates. That said, I’d like to stress that our vision of the neutral rate does not prevent us from easing monetary policy. We may pursue an accommodative policy while our key rate remains below the range of our neutral rate estimates. This is exactly what is happening now and why we say that we have switched to the accommodative monetary policy. I believe we will look into the neutral rate in more detail when we discuss the Monetary Policy Guidelines, including more fundamental factors and trends. These topics will be examined by us in autumn.
QUESTION from TASS Agency:
Over several recent days, the BoR has expanded markedly the volume to FX sales in the domestic market. What are the reasons for this trend?
ELVIRA NABIULLINA:
As you might know, the volume of our sales depends on the oil price (under the fiscal rule), and this change in the volume of sales is primarily driven by oil price dynamics.
QUESTION from Rossiiskaya Gazeta:
Do you think that today’s key rate cut will be replicated by banks’ deposit rate cuts? Or conversely, given the current economic situation, might banks postpone this decision and opt to leave them unchanged?
ELVIRA NABIULLINA:
Our key rate decision always takes effect with a lag — it passes through with a lag to bank interest rates, both deposit and lending ones. Now this mechanism may be slightly modified — i.e. all this transmission mechanism, which is explained by the current extraordinary situation. Banks will make their own decisions as to the extent to which they are going to reflect this in their deposit and lending rates. It is evident so far that despite elevated credit risks lending interest rates have not increased considerably. As for deposit rates, they also remain rather stable despite some changes. I would also like to mention that a rather big portion of deposits is represented by long-term rates of one-year deposits. With that, we continue to assert that deposit rates preserve their saving appeal for households.
QUESTION from Komsomolskaya Pravda:
The key rate cut means a good signal for the economy. However, this cut is known to take effect with a big lag — up to 6 months. In other words, the economy will feel it only in half a year. Whereas support is needed right now. Therefore, will it be worth supplementing the lending rate cut (keeping in mind that very few loans will be issued because of crisis) with the methods of direct financial assistance for business and households? For example, instead of lending money, to give it out free of charge, against the pledge of future tax payments. What do you think about this proposal?
ELVIRA NABIULLINA:
I want to repeat that we support direct payments to households and businesses in this turbulent time — budget transfers. Loans and their interest rates are important, but direct support is of greater importance for people at the moment. We see concerns among both business and households about increasing their future debt burden. The Government is employing the following support measures, including fiscal measures, such as grants, increased unemployment benefits, payments to categories in special need, family assistance, etc. However, please do not mix it up with monetary policy and with the so-called ‘helicopter money’, though the question did not refer to it, as well as with the printing of money by the Central Bank and distributing it among households. First, I would like to say that so far no one in the world has ever used these measures. They are much discussed, but no one uses ‘helicopter money’, when central banks print money and give it out to people. Even if we imagine that we in the BoR print money and provide it at a zero rate, what will be the consequences? Let me remind you of the 90’s. This will lead to a surge in inflation so that it will be very difficult to buy anything worth this money. All these payments will be devalued by inflation. It is inevitable in this situation. Our objective is to preserve savings, wages and purchasing power. Control over inflation and over its keeping in line with our objective is exactly what helps us support the purchasing power of wages and household savings. Therefore, we definitely support direct budget transfers. As for monetary policy, it shall primarily keep in check price growth, which will in turn support living standards. Besides, we may resort to monetary policy easing, as we have already discussed today and are still discussing, and we are cutting the key rate. All this is done not to the detriment of inflation, but to avoid a galloping price growth.
QUESTION from Interfax:
Foreign currency from the NWF received as part of the Sberbank acquisition deal was converted into rubles. But the BoR sells this currency in the market when the oil price drops below USD 25 per barrel. How much currency has been sold by the BoR under these transactions? Has any decision been made as to further actions if all the currency has been sold by 30 September? Will these transactions be offset by suspended FX purchases? By what additional period of time have FX suspended purchases been extended? The decision on a
ELVIRA NABIULLINA:
Indeed, we have several channels or facilities for selling foreign currency. We started our preventive FX sales on 10 March. Since that time, aggregate fiscal rule-based FX sales, including operations associated with the sale of Sberbank, have totalled USD 5.5 billion. With that, as of today, regular sales by Minfin slightly exceed USD 600 million. These operations started on 7 April and replaced previous FX purchases, conducted when our oil price had been above the cut-off price. The Bank of Russia’s preventive sales totalled USD 2.3 billion; they were conducted before Minfin switched to its sales in order to bridge the lag between the current oil price and fiscal rule-based operations by Minfin pegged to the previous oil prices. Moreover, the volume of sales conducted as part of the deal with Sberbank's shares totalled USD 2.6 billion. In these transactions we offset the shortfall in oil and gas export revenues, when Urals was below USD 25 per barrel, as announced on 19 March.
This is roughly the structure of our aggregate FX sales. We will make a decision on the sale of remaining FX associated with the Sberbank deal, as well as on the feasibility of the setoff linked to our suspended FX purchases for Minfin, when we switched to forward-looking sales, after the situation in the oil market stabilises.
QUESTION from TASS Agency:
The head of VTB said that banks might buy the additional OFZ issue subject to longer repo maturities. Is the BoR ready to consider the extension of repo maturities for these purposes?
ELVIRA NABIULLINA:
We have already announced and I want to repeat that we do not rule out longer repo maturities, though not for the specified operations. It is clear in general that longer liquidity is needed in the situation when the banking sector’s liability maturities are contracting, whereas asset maturities are expanding in part due to the restructuring of loans both to individuals and legal entities. Issues concerning the maturities of assets and liabilities may emerge here. That said, we indeed allow the extension of repo maturities in order to support banks’ interest in longer-term assets, including but not limited to government securities. We are looking into this issue in more detail now.
QUESTION from Bloomberg:
On 30 March, the Bank of Russia informed about the termination of gold purchases for its international reserves. Can you explain the logic behind these terminated purchases? Has the regulator changed its perception about the risk of this position? Do you consider the possibility to begin selling your gold reserves?
ELVIRA NABIULLINA:
It is true that we have built up rather energetically the share of gold in international reserves for the sake of their diversification. In this regard, gold constitutes a unique reserve asset, as I have mentioned, which is not influenced by the activities of reserve currency issuing countries. In order to diversify risks characterised by both financial and geopolitical properties we increased the share of gold to a comfortable level. We do not view it necessary to start selling our gold stocks. What for? Not clear. We have accumulated enough foreign currency. By all parameters, our international reserves are sufficient both to support imports and in terms of all indicators — in relation to the short-term debt. Therefore, we do not view it necessary to sell gold. The reason why we stopped buying gold is the following: now gold is in demand in global markets and it may increase export revenues and the inflow of foreign currency to the Russian market. We see that gold exporters are taking advantage of this situation. In terms of risk perception, our gold positions have not changed. We understand that gold is a rather volatile asset which, nonetheless, possesses other, already mentioned, advantages.
QUESTION from Financial One magazine:
Quarantine and government measures to impose self-isolation on citizens are becoming stricter. When, in the BoR’s estimate, can we expect the “unfreezing” of the economy? How long will it take to compensate GDP losses incurred over this period? In your opinion, how many people will become unemployed and how will it affect inflation and the exchange rate of the ruble at end-year?
ELVIRA NABIULLINA:
I see several questions. The manner in which the restrictions will be lifted, the economy will gradually recover and return to normal will, to a large extent, depend on the development of the epidemiological situation. This is indeed a priority. We are all perfectly aware that the restrictions have been implemented for a good reason, namely, to more efficiently counter the spread of the coronavirus. The baseline scenario assumes that the gradual lifting of the restrictions will in all probability be uneven across the country, and will take place in the second quarter. This is our baseline scenario, but everything will depend on the specifics. Time will really be needed to revive the economy, which will not happen immediately, with secondary effects at play. In our opinion, this recovery will be gradual, positive economic growth rates will appear in 2021 already, and the economy will be also recovering during this period.
“In your opinion, how many people will become unemployed and how will it affect inflation and the exchange rate of the ruble?” We (our economy) have one specific feature: as a rule, the labour market adapts to such disturbances in the economy not so much through the increase in unemployment, even though certain unemployment growth (from all-time lows) may occur, but rather through the adaptation of wages. In many other countries, especially in the USA and, probably, in the EU, all this feeds through into unemployment trends to a greater extent. In our situation, it influences the dynamics of revenues and wages. Given the above, I don't think that it may affect the ruble's exchange rate in any special way, though the exchange rate is sensitive to it. As for inflation, we really face a very serious and very considerable influence from disinflation factors driven by decline in demand — both external and domestic. This is exactly why, in our view, inflation will not deviate upwards from the target.
QUESTION from Reuters:
What budget deficit is factored in in the BoR's baseline scenario for 2020? What are the risks, in the BoR’s view, associated with the re-allocation of all budget investment expenditures to the social sphere?
ELVIRA NABIULLINA:
The current situation will undoubtedly influence the budget. The budget faces a considerable drop both in oil and gas and non-oil and gas revenues. This is a period of growing expenditures needed for anti-crisis measures which will increase the budget deficit (of the federal budget — editor’s note) possibly to about 6%, not exceeding 6%, according to our estimate. I would like to say that Russia’s very balanced macroeconomic policy made it possible to accumulate various reserves, buffers, one of which being the National Wealth Fund. Similar buffers exist in the financial system. They all will help support social expenditures of the budget given such a serious decline in revenues.
Let my speak about the risks we anticipate if all investments are re-channelled to social needs in this situation. We are well aware of the opportunity to re-allocate certain investment expenditures that cannot be executed because of existing restrictions and activities suspended by some businesses onto social needs; it will support people in this situation and will eventually allow us to lift restrictions more smoothly and to gradually restore investment activities. We know that investments will decline this year — it was expected in these conditions. We don’t see any special risks. We expect that following the broadening of the planning horizon and improved predictability, as well as the recovery in financial resources, investment activity will also revive. We know that the state and the Government will definitely support essential investment expenditures to ensure the ongoing operation of businesses and industries.
QUESTION from Komsomolskaya Pravda in Saratov:
Why, unlike the situation of end-2014, when the BoR decided to raise the key rate to 17% because of a hike in the USD exchange rate, does the regulator think of a further key rate cut now despite the similar exchange rate path of the dollar? Though these are two different crises, was it a mistake and have you revised your policy? Why didn’t you cut the key rate much earlier, say, half a year ago? And why exactly now, not before, is it bound to help the economy?
ELVIRA NABIULLINA:
First, we have not revised approaches to the policy, because the current situation differs drastically from the
Now, why we did not cut it before, half a year ago, with the same pace. But, speaking about the situation half a year ago, no one could imagine the exact development of the pandemic and its impact on the global economy and the situation in Russia. It is true that we cut the key rate half a year ago, but the rate then was different from the rate we need today when we expect considerable slumps in demand (we are already facing them). We believe that the pass-through of the key rate will be more efficient when the economy begins to gradually lift the restrictions.
QUESTION from the Financial Times:
Yesterday, at the meeting on banking sector issues, the President and several participants put forward additional proposals seeking to support economy, including the proposal to step up government expenditure by way of the acquisition of new public debt by banks. Does the BoR support these measures?
ELVIRA NABIULLINA:
In fact, banks have a possibility to acquire additional government securities. As often happens in such turbulent situations, banks opt for less risky assets, they are sort of flying to risk-free assets which make public debt attractive for them now. This is a possible development of the situation.
QUESTION from Interfax:
Does the BoR consider the possibility of a negative value of the countercyclical capital buffer?
ELVIRA NABIULLINA:
No, it does not. We do not have this possibility by law. Besides, I don't think that negative countercyclical capital buffers (CCyBs) have ever been applied in other countries. The mechanism of the CCyB is the following. It works on the contrary: it is established at a certain level during periods of economic growth so that it may be used during periods of financial stress — which implies the release of the buffer. For this reason, many countries create rather big CCyBs to use them afterwards. Our CCyB is at zero level, but there is neither a possibility nor a need to lower it. We have other buffers that can be released — macroprudential buffers. By the way, we have started to release them, for example, on mortgage — the amount is around 110 billion rubles; there are also other buffers which may be used if need be. Additionally, we allowed banks not to comply, among other things, with several buffers to required ratios — naturally on conditions that they comply with the requirements for dividends and bonuses.
QUESTION from Rossiiskaya Gazeta:
What will happen to the retail lending after the economy is back to normal? How deep will the credit portfolio of banks plunge? Will it be possible to talk about exponential growth in certain types of lending? What can be done and what is planned by the BoR in this situation?
ELVIRA NABIULLINA:
Needless to say, banks usually contract lending during periods of stress. The question is about retail lending. According to our estimates, it will perform differently compared to corporate lending. We anticipate a slight ongoing increase in corporate lending, which is mainly explained by the fact that large corporations may come from the external market, they may apply for loans to the banking system, and they may come from the bond market. As for households’ demand for loans, it definitely declines in these conditions. Banks on their part also employ a more cautious approach to assessing credit risks. We do not anticipate an exponential drop in lending either now or as we exit the crisis. We estimate that the overall dynamics of retail lending may be roughly 0% or slightly negative, with mortgage growing about
QUESTION from TASS Agency:
Borrowers’ advocates register an escalation of complaints from citizens who cannot receive credit holidays. Is the BoR aware of this problem? To what extent are refusals to grant credit holidays wide-spread? What are they most often conditioned on? And what solution does the BoR anticipate?
ELVIRA NABIULLINA:
We really see that there are refusals, that people are not always able to restructure their loans when they apply to banks. This is due to many reasons. First, there is of course an immediate and virtually simultaneous influx of applications for loan restructuring. The assessment for many banks suggests that the number of applications filed during one month now is more than for the whole past year. Banks are naturally adjusting this system alongside the parameters of restructured loans. We can see that application approval dynamics are positive now. A meaningful reason for refusals is associated with non-compliance with the criteria of restructuring which is executed by virtue of law — when banks are obliged to restructure a loan if a person meets a number of criteria. And quite a few refusals are due to the fact that a loan amount exceeds the limit set by regulations. These seem to be the main reasons.
We have the Call Centre and the Service for Consumer Protection; and we will certainly monitor the situation, but we also see that banks are expanding their activity. Of course, households and small enterprises are deeply concerned about the timeliness of this restructuring, they want to be sure penalties and fines won't be charged. Importantly, banks on their part are also re-adjusting their policies, because they realise that this will help support the creditworthiness of their future borrowers, their future clients.
QUESTION from Izvestia:
Why are banks not willing to issue loans at 0% to ensure wage payments? May it be due to the fact that it is in essence a highly risky loan? Is it reasonable to adjust lending conditions?
ELVIRA NABIULLINA:
It is true that at the start of this programme, both the Government and the BoR noted that the pace of its implementation was very slow and rather inefficient. We were very worried about it. We discussed this issue with banks in order in part to help banks easily determine the amount of this loan. Now that the Federal Tax Service has launched its service, all this will help accelerate the dynamics of these loans. These dynamics could be further accelerated by increase in the volume of guaranteed collateral and surety from VEB which now stands at 75%, whereas the remaining 25% represent risks taken by banks under highly uncertain conditions making it difficult to assess the ability of businesses to restore their solvency and the extent of this ability. Banks are in fact not willing to take upon themselves excessive credit risks, trying not to accumulate bad assets on their balance sheet. Therefore, it is important to expand support from VEB. Moreover, at the beginning, very few banks participated in this programme. We have always raised the issue that this programme shall cover a bigger number of banks, and not only systemically important banks, not only major banks, but also banks with sufficiently good credit quality, e.g., banks with A- credit rating. Our programme of unsecured loans supports the Government programme of 0% loans to ensure wage payments. Our programme is designed for a big number of participants — up to 64 banks — if I am not mistaken. We can see that the number of banks is growing: more than 20 banks have joined the programme; so, our assumption is that the programme will advance, because banks are interested in it. We will monitor the situation on an ongoing basis and will also cover it in the Financial Pulse review.
QUESTION from RBC:
When do you think the economy will return to the pre-crisis level?
ELVIRA NABIULLINA:
I have already talked about quarterly rates, namely, about the expected recovery growth which will begin in the third quarter and continue into 2021. However, one quarter is not enough for either the global or Russian economy to return to where it was before the pandemic, therefore our annual growth rate will remain negative up to the first quarter of 2021. We anticipate it will be exactly the period when the economy will begin to reverse to the pre-crisis level.
QUESTION from social networks:
At the previous press conference, you mentioned that banks will extend the validity periods of expired bank cards. Today, in response to a similar question, my bank answers that it is not technically possible to do so and that the card will be re-issued, and that it will be available in electronic form. It will enable online and cashless payments, but not cash withdrawals and bank operations requiring bank cards. Can you comment on it?
ELVIRA NABIULLINA:
We have indeed issued such recommendations and we know that the rules of payment systems operating in the Russian market provide for the possibility to conduct operations with bank payment cards with expired validity terms. Moreover, they have also sent their recommendations to banks; and the technical capability to adjust their processes (which adjustment needs to be performed by banks to activate this capability) is also in place. Many banks have already performed what has to be done on their end, whereas certain banks need more time to do this.
We will monitor this situation and will provide explanations to banks, if need be, as to required procedures. We believe it is critical for people to be able to conduct such operations in view of current restrictions. If your problems are not solved, please refer your requests to our online reception. We will be ready to address your requests and communicate with concrete banks. I would also like to note that, in our view, further expansion in settlement will be due to cashless payments which are gaining popularity and increasing the use of cards by population.
QUESTION from RIA Deita.ru, Vladivostok:
The pandemic increased the number of frauds associated with the use of bank cards. In what way do credit institutions and the regulator oppose illegal attempts? What are the most popular schemes among fraudsters?
ELVIRA NABIULLINA:
Fraudsters have always been and will continue to be resourceful and, much to our regret; they take advantage of people’s hardships. We are registering an increased number of telephone calls when people are offered payment schemes, compensations with references to official agencies, and assistance in obtaining credit holidays. I think practically everyone has heard about such schemes. There are many points of concern here. Our main recommendation, shared also by banks, is to hang up whenever somebody is eliciting your personal data, bank card details, and to immediately call your servicing financial institution. You must never give your personal data, bank card information or make any payments. As soon as you are asked to give your data, you should disconnect the call and address all your further questions to your bank.
QUESTION from Vedomosti, Reuters, Rambler:
Is the banking crisis possible?
ELVIRA NABIULLINA:
I will say outright: no, it is not possible.
QUESTION from Vedomosti, Reuters, Rambler:
May banks need support this year? What should banks do not to accumulate bad debt? This topic was mentioned by the President at yesterday's meeting.
ELVIRA NABIULLINA:
Today’s situation undoubtedly feeds through to the banking sector: asset quality is deteriorating; many households and businesses are restructuring their loans. This results in banks’ unearned profits and a drop in commission income. Still, I would like to stress that this is a completely different situation compared to 2008 and 2014. Banks have accumulated real and effective stocks of capital and liquidity. They entered into this situation being rather well prepared. We on our part implement regulatory easing to enable banks to allocate losses over a longer period of time, even though they have now considerable stocks and capital buffers. Losses are inevitable. This is the real reason for holding this capital and for our macroprudential buffers, though banks of course were utterly dissatisfied with them. Our capital buffer now totals roughly 5 trillion rubles. Banks need these capital buffers to absorb losses caused by loan restructuring, non-performing loans and asset quality impairment. They shall be used in these conditions. I want to reiterate that our regulation makes it possible to allocate these losses over time. We are conducting regular stress-tests. They suggest that despite a considerable decline in profits banks still have capital to conduct loan restructuring and to go on with lending to the economy. This is a cross-section of today's situation. Importantly, we need to observe economic developments and bank borrowers’ standing. We are persistently monitoring the state of bad assets held on balance sheets, therefore measures designed to support borrowers are very important. They help banks avoid the accumulation of excessive bad assets on their balance sheets, and preserve their own resilience and their clients’ trust. This is exactly what is in place now.
Thank you very much for your questions. This is to remind that we provide a detailed account of the current situation in our weekly Financial Pulse review. It will be released today after 18:00 MSK. Since next Friday will be a day- off, our next press-conference is scheduled for 8 May, concurrently with the release of the next issue of the Financial Pulse. If necessary, we will discuss additional measures next time. Depending on the situation, we may announce them before 8 May. Meanwhile, I would like to wish good health to everybody. Please, stay at home. Thank you for your time.