Press conference of Bank of Russia Governor Elvira Nabiullina on 5 June 2020
Good afternoon, dear colleagues
In recent weeks, multiple regions started to ease their restrictions. According to up-to-date information, consumer demand and production activity have been slightly improving.
Consumer-focused sectors are showing a more notable recovery of their economic indicators. Industries related to investment demand and intermediate goods production continue to demonstrate diverse trends. Among other factors, this is explained by the recovery pace of business activity in other countries. It is still moderate, thus affecting external demand. Another reason is the reduction in oil production and its impact on related industries. This influence is confirmed by the uneven changes in power consumption in May: it recovered in the centre of the European part of Russia, while decreasing even more in Siberia, the region concentrating mining enterprises.
There is a noticeable upturn in consumer activity, including owing to the partial realisation of deferred demand. Specifically, payments to retailers increased in May, even exceeding their ‘pre-coronavirus’ levels by
Our indicators of incoming financial flows also evidence that economic activity is bouncing back. Over the week from 25 through 29 May, incoming payments, excluding mining, oil refining, and general government, reduced their downward deviation from normal to 6.6% compared to 11.3% the week before.
The business surveys carried out by the Bank of Russia on
After the record downfall in April, the PMI indices demonstrated a considerable rise in both manufacturing and the service sector. Nonetheless, these indices are still considerably below their
The employment rate in the labour market continues to go down. As of the end of April, unemployment increased by 1 pp against March, to reach 5.8% (according to the Bank of Russia’s assessment; seasonally adjusted growth — 5.6%). This conforms to the early 2016 level and, moreover, is substantially lower than in a number of major economies. According to recent information, unemployment rose slightly more as of the end of May. A progressive upturn in economic activity is expected to support a gradual recovery of employment in the second half of the year.
As to inflation, the end of May recorded a decrease in inflationary pressure and a strengthening impact of disinflationary factors. Over the period of the May holidays, weekly price growth was close to zero. In the last two weeks, weekly inflation was 0.1%. This trend was presumably the result of easing restrictions. It should be emphasised once again that current data on inflation can be characterised by a higher statistical noise during the period of the restrictions affecting non-food trade and a whole range of services. Relying on weekly figures, we assume that seasonally adjusted price growth in May was close to 4% in annual terms, which is considerably less than in April. Tonight, Rosstat will publish its monthly statistics on May’s inflation calculated across the entire basket of the consumer price index. At the beginning of the next week, we will get the breakdown by product and carry out a more detailed analysis.
Price growth is slowing faster than we expected when discussing our key rate decision on 24 April. This is driven by the strengthening of the ruble against the background of the rapid upturn in oil prices last month. However, moderate domestic and external demand will remain the predominant factor influencing price growth. PMI data also confirm that disinflationary trends are prevailing. Namely, PMI price sub-indices in the service sector demonstrated that the growth of inputs decelerated, while the reduction in output prices sped up amid intensifying competition. Previously, the index of output prices had plummeted so much only back in 2009.
Overall, information on the economy and inflation confirms our opinion that we have enough room for further key rate reduction.
Financial markets also maintained a positive trend. Global markets showed almost no response to increased political and geopolitical risks (a new round of the deterioration in US — China relations, and civil unrest in the USA). Implied volatility of the exchange rate and CDS continued to go down. Prices for Russian companies’ shares remained almost unchanged. Yields of federal government bonds declined slightly more. The Ministry of Finance continued to successfully place new bonds. There were also successful placements of several corporate bond issues.
Lending is also demonstrating signs of a revival. Over the period from 25 through 31 May, Russian companies’ credit exposure increased by 0.3%, which supported the overall growth in May preliminarily estimated at 0.4%.
The retail loan portfolio expanded by 0.5% from 25 through 31 May, which set off the contraction in the first half of the month. Thus, according to preliminary data, household loans rose by nearly 0.2% over May, while in April they decreased by 0.7%. This growth was partially supported by the launch of the preferential 6.5% mortgage lending programme. As of 28 May 2020, banks granted loans to an amount of 57.5 billion rubles under this programme, with the largest percentage of disbursements made exactly in the second half of the month.
The situation with funding is generally rather stable. Companies’ accounts slightly contracted as of the end of the month as a result of their tax payments, but remained almost unchanged in monthly terms. Conversely, household deposits were up by 0.2% over the last week, while slightly decreasing over the month in general.
The situation with liquidity remained comfortable, and banks demonstrated no demand for the Bank of Russia’s liquidity-providing instruments.
Now, regarding the measures to support households and businesses.
By the moment, individuals have submitted over 2 million loan restructuring requests. The number of new applications is gradually decreasing. Thus, the number of requests this week is thrice lower than last week. This suggests that the majority of borrowers have already made their decisions on whether they need loan repayment holidays. Further on, the situation will depend on the pace of economic recovery. The total amount of restructured loans has exceeded 510 billion rubles. Overall, the percentage of approvals has reached 61.5%.
Restructuring of loans to small businesses. To date, small businesses have submitted 129,000 loan restructuring applications. New requests received over the past week numbered 7,000. Over the last three weeks, the number of new applications was progressively decreasing, which suggests that businesses’ demand for this support measure is gradually going down. Over the period from 20 March to 3 June, restructured loans amounted to 587 billion rubles. The percentage of approved requests remains high, approximating
As regards preferential lending programmes for corporates, as of 3 June companies submitted over 72,000 applications under the zero percent wage loan programme to a total amount of over 180 billion rubles. 52% of these requests were approved.
More details are available in the Financial Pulse review to be published tonight. The next issue of the Financial Pulse is scheduled for 19 June since 12 June is a public holiday.
Our next press conference will take place on 19 June, following the monetary policy meeting of the Bank of Russia’s Board of Directors.
I will now answer your questions.
Q&A for the Media
QUESTION from Reuters:
Has the key rate reduction by 100 bp in June become more probable, taking into account May’s data on annual inflation?
ELVIRA NABIULLINA:
I would like to repeat once again that we do see room for cutting the key rate. Therefore, the possibility to reduce the key rate by 100 bp will be considered at the next meeting of the Board of Directors among all other options. However, we will make our decision based on the already available data and information we will continue to receive, as well as with account of our adjusted forecast estimates of inflation and GDP.
QUESTION from RBC:
Given today’s oil prices, the Bank of Russia will presumably not need any more to sell its revenues from the Sberbank deal until September. What is the amount of foreign currency revenues from this deal currently remaining at the Bank of Russia? Will the Bank of Russia resume its plan to sell these revenues over the next three to seven years? One more question on the same issue, if I may. When does the Bank of Russia assume it possible to terminate fiscal rule-based foreign currency sales amid the upturn in oil prices?
ELVIRA NABIULLINA:
The Bank of Russia has been really selling foreign currency earned from the Sberbank deal. By the moment, the amount of sold foreign currency approximates 4 billion and 300 million US dollars. The remaining foreign currency amounts to about 1 trillion and 800 billion rubles. As we announced earlier, until 30 September we will be following the rule implying that we may sell these funds, this foreign currency, in order to offset the decline in export revenues occurring when the oil price goes down beneath USD 25 per barrel. Currently, we can see that the oil price is actually above this level. However, this rule will be applicable until 30 September. As to the remaining amount, I would repeat once again that it totals 1 trillion and 800 billion rubles. We will make our decision regarding this amount closer to the end of September and will surely announce it to the market community in advance.
As to the switch from foreign currency sales to foreign currency purchases if the oil price reaches the cut-off price, we can see that the price has really bounced back rather close to the cut-off level. However, with regard to this issue, I would like to emphasise that we always carry out these operations within the fiscal rule and in compliance with instructions received from the Ministry of Finance that are based on its calculation of the deviation in actual oil and gas revenues from the baseline level. Furthermore, it is essential to comprehend that the baseline oil and gas revenues are calculated based on forecast oil and natural gas outputs and exports. This forecast was prepared back in autumn 2019 when the related budget was developed. Hence, oil production cuts within the OPEC+ deal will not impact the calculation of these baseline oil and gas revenues. This conforms to the logic of the fiscal rule that smooths out the influence of price changes on the economy. Therefore, we will carry out these operations under the fiscal rule and pursuant to instructions from the Ministry of Finance, if relevant events occur.
QUESTION from Rossiyskaya Gazeta:
Which problem do you consider to be the key one for the Russian banking sector during this crisis and why? Is it possible to say that the deteriorated quality of loan portfolios, for instance, is the major problem?
ELVIRA NABIULLINA:
That is true; credit risk is surely the key one given that loans make a material portion of banks’ assets, specifically nearly 70%. This is probably a critical challenge for the banking system in the conditions when the economic situation in general and economic trends are worsening. However, the banking system has accumulated safety cushions. These buffers will help it absorb losses caused by the declining credit quality and financial standing of borrowers. In order to provide additional time for the banking system to adjust to changes in borrowers’ status, we have eased the banking regulation. In addition, loan restructuring for borrowers enables banks to spread this risk over time. Furthermore, a part of borrowers will be able to recover their creditworthiness owing to such loan restructuring. Actually, in a significant number of cases banks may not even have to deal with growing credit risk after a while, if households and businesses recover their incomes and creditworthiness. Therefore, although this risk is surely the basic one, we believe that the accumulated safety cushions and the measures being implemented will subsequently enable banks to quite comfortably overcome the period of the decline in the credit quality of their portfolios.
QUESTION from Izvestia:
Does the Bank of Russia see any additional risks for the mortgage market due to the decrease from 20% to 15% in the down payment on preferential mortgage loans? Are there any estimates of how a down payment amount may correlate with the probability that a loan may become non-performing?
ELVIRA NABIULLINA:
There is definitely a general credit quality correlation explaining, for instance, why not only the regulation, but also banks themselves focus so much on the size of the down payment. The amount of the down payment an individual or a family has been able to save demonstrates the extent of their readiness to service their loans in the future, that is, their ability to save funds, which correlates with their capability to service loans. Hence, the amount of the down payment is certainly essential, and a range of countries even prohibit banks to grant loans with very low down payments. Our regulation is differentiated, and this is also connected with the introduction of the debt service-to-income ratio.
As regards preferential mortgage loans, first of all preferential 6.5% mortgage lending, and the decrease in the down payment from 20% to 15%, we believe that this will boost demand for these loans, yet without any serious rise in risks for the banking system. Moreover, we have recently adjusted our regulation and also distinguished the category of loans with the down payment from 20% to 15%, provided that the debt service-to-income ratio is applied, since we consider that this involves lower risks than, for instance, in the case of down payments from 15% to 10%. Hence, in our opinion, this measure is totally reasonable and does not entail any systemic risks for banks.
QUESTION from Interfax:
You have already provided preliminary statistics on lending for May. Does the Bank of Russia have data on the banking sector’s profit in May? Was its performance positive or negative? And another question to continue this topic. A while ago, the Bank of Russia recommended that banks postpone their dividend payouts and reschedule their annual meetings for September. How many banks are following the Bank of Russia’s recommendations? Are all banks adhering to them? How many banks have nevertheless decided to pay out dividends to their shareholders? Are there any banks that are disrupting, or rather, failing to maintain capital adequacy buffers and, accordingly, not entitled to distribute dividends to their shareholders for 2019?
ELVIRA NABIULLINA:
At the moment, we have not got specific figures on the banking sector’s profit or loss in May. Overall, we do see that the banking sector’s profit will be declining this year. Nonetheless, according to our preliminary estimates, it will not become negative across the banking sector in general. Of course, all this will depend on how the pandemic situation will be unfolding with all the economic restrictions in place, and so on. However, we can’t get around the fact that the banking sector’s profit will certainly be plummeting this year.
This is also one of the reasons why we have recommended that banks postpone their decisions on dividend payouts. I would like to repeat again that this is applicable to dividends related to the distribution of last year’s profit. The banking sector’s profit was significant in 2019. In our opinion, the situation may become clearer closer to autumn, although uncertainty will still remain. Nonetheless, it will then be possible to more accurately estimate the load on capital for individual banks and understand whether they need to increase their capitalisation, including using their profit. Having this understanding, banks will be able to make more justified decisions on whether to pay dividends or not. We believe that in today’s situation banks should allocate their profit and resources so as to maintain their capitalisation, in the first place. This is essential not only to absorb losses incurred due to the deteriorated quality of their loan portfolios, but also to support lending to the economy during this period.
We are monitoring how banks are fulfilling our recommendations. The majority of banks do follow them. Almost all majors have rescheduled their board of directors’ meetings to the recommended period, or have already made the decision not to pay dividends. Therefore, we believe that banks are sufficiently responsible in addressing the issue of their capital and dividend payouts. To date, there are no cases where systemically important banks breach the ratios involving this rule to postpone dividend payouts.
QUESTION from Russia 24 TV channel:
My question is about the new plan for economic recovery. This document provides for a reduction in mortgage loan rates beneath 8% this year and even lower in 2021 and 2024. How is the Bank of Russia going to ensure the achievement of these levels? And generally, what other tasks are to be tackled by the regulator within this plan?
ELVIRA NABIULLINA:
As to mortgage loans, their affordability is really an essential issue for all of us. We do see the need for the development of mortgage lending and observe households’ demand for mortgage loans to improve their living conditions. The Bank of Russia is capable to maintain price stability, long-term price stability, when inflation is under control. This is exactly what enables us to reduce interest rates, and first of all on long-term instruments. The recent expansion of mortgage portfolios surely evidences that market participants — economic agents — have got more confidence in long-term money and inflation control. Hence, responsible monetary policy is exactly what enables us to make interest rates on long-term loans, primarily mortgage loans, more affordable. The reduction in mortgage interest rates is certainly possible owing to the preferential lending programmes being implemented by the Government. During the current period, these programmes are crucial to support households’ demand for mortgage loans. We hope that these programmes will be developed further.
As to the country-wide plan, the Bank of Russia has been actively participating in its discussion. There are several areas of focus where we are intensely cooperating with the Government. In the first place, this is support to small businesses and the development of financing instruments for small and medium-sized enterprises; this is the advancement of digital finance and the digitisation of the entire financial industry; this is basically the development of financial instruments for the economy, including long-term money, bonds, ‘green’ bonds, and the financial market infrastructure that will help finance the needs of both households and businesses.
QUESTION from Kommersant:
As we have written, inflation expectations in May were a welcome surprise for us. What is your opinion regarding how inflation expectations may be changing in summer? Do you have any assumptions of what may happen during this period, and maybe in unanticipated conditions, but is it probable that inflation expectations will get anchored? Do you believe that they have a lower barrier in Russia’s economy? Do you conjecture that they may decline beneath this barrier? Let’s discuss this issue.
ELVIRA NABIULLINA:
Inflation expectations are really an essential parameter we are analysing. Our space of monetary policy decisions may be limited when inflation expectations are either too high, or unanchored. Although they remain unanchored in our economy, it is worth noting that their behaviour is steadier than we assumed, despite the recent shocks, specifically economic shocks. Inflation expectations have really risen, but not significantly, and they have started to adjust quite fast. We anticipate that inflation expectations will continue to trend downwards in summer, following the inflation path. What aspects may now suggest that inflation expectations are unanchored? This is their excessive susceptibility to current inflation. That is true; they are unanchored, and it will take a long time for them to become ultimately anchored. Nonetheless, since we expect inflationary pressure to decrease and disinflationary factors to prevail, accordingly, we also predict that inflation expectations will go down as well. As to the lower barrier for inflation expectations, it is very difficult now to draw any specific conclusion about this. I do not think that we will push through any lower barrier in this regard.
QUESTION from Bloomberg:
Could you estimate the potential for monetary easing until the end of the year, and not only at the June’s meeting? Does it exceed 100 bp? Is it possible that the Bank of Russia will consider monetary easing by more than 100 bp as one of the options already in June?
ELVIRA NABIULLINA:
We do have a considerable space for easing our monetary policy, but the issue of how extensively we should use it is discussed at each meeting of the Board of Directors. It would be incorrect to say that this space should be used as a result of one meeting or until the end of the year, since the situation is changing and there is a lot of uncertainty. Therefore, we should take these steps, properly assessing every time what consequences they may entail and how they may impact the economy and inflation. As regards a more significant pace of over 100 bp, we are always taking into account not only disinflationary and pro-inflationary factors, but also how this pace may influence the performance of financial institutions, banking institutions. As I have already said, often their deposit portfolios may be changing fast and their assets have longer maturities. Therefore, any notable change in the key rate may involve certain risks for banks, and we would prefer to avoid these risks. This is why we are opting for a slower pace for all economic agents to be capable to adjust to changes. Moreover, our priority is to deliver decisions that would be sustainable regardless of any particular scenarios of economic developments, especially when the situation involves so much uncertainty. Such risks of an interest rate change are justified only when there is a dramatic alteration in the forecast induced by certain circumstances. Today, our economy is developing in line with the baseline forecast, but at our meeting on 19 June we will discuss our view and forecast in greater detail.
QUESTION from RIA Novosti:
Does the Bank of Russia’s forecast factor in a potential resurgence of the pandemic?
ELVIRA NABIULLINA:
We are really discussing this issue. There is a lot of uncertainty on this point. Actually, we are quite conservative as regards the progressive cancellation of restrictions. Even if the situation worsens in some regions or over a certain period of time, it is unlikely that restrictions will be very tight. Rather, they will be much looser than at the previous stages. Nonetheless, we will surely discuss these issues at the Board of Directors’ meeting in order to deliver a well-informed decision. We always consider multiple scenarios when making our decision.
QUESTION from Banki.ru:
Ms Nabiullina, you have already spoken of a substantial decrease in households’ demand for loan repayment holidays after its peak in April. Do you expect a second wave of loan restructuring for individuals? Is it possible that it will be as large-scale as the first one?
ELVIRA NABIULLINA:
Generally, demand for loan repayment holidays definitely depends on households’ incomes. Individuals apply for loan repayment holidays when their incomes decline and they are unable to service their loans. Our baseline scenario implies a progressive economic recovery and a gradual upturn in households’ incomes. Therefore, we do not expect a second wave of high demand, but it may surely be rising at times. I would like to emphasise that individuals may apply for loan repayment holidays both pursuant to law through 30 September, and according to banks’ in-house programmes depending on time periods offered by banks. Therefore, this instrument remains in place, and individuals are entitled to apply for it through 30 September.
QUESTION from Delovoy Kvartal, Novosibirsk:
What amendments will be introduced into the banking regulation now when banks have to make new decisions regarding their work with businesses needing loan repayment holidays, preferential terms, and other concessions?
ELVIRA NABIULLINA:
Borrowers surely need loan restructuring and loan repayment holidays, and banks have to deal with these issues. We have adjusted the banking regulation to incentivise banks to approve such restructuring requests since our regulation should not restrain the restructuring process when loan restructuring and loan repayment holidays are totally reasonable. Accordingly, we have permitted banks not to create additional provisions for restructured loans. At first, this was only applicable to small and medium-sized enterprises of the most affected industries. Later on, we expanded this measure to cover all loans that had been of good quality (the first and second quality categories) before the start of the pandemic, that is, their quality worsened exactly because of the pandemic. Normally, banks need additional provisioning when loan quality declines. However, in the current situation we are aware that such deterioration will be temporary in a range of cases, and for this reason we have permitted banks not to create extra provisions. Banks are taking advantage of this. Secondly, we have permitted banks not to take into account movements of the exchange rate and securities prices, since they were also altering rather dramatically. We can see that the exchange rate and asset prices have largely recovered later on. This has been done to help banks adjust to the changed situation over a long period of time. Hence, we have introduced these amendments into the regulation in order to support this loan restructuring, and we can see that banks are approving restructuring requests, extensively using these new measures.
This is very good that banks are striving to retain their borrowers for the latter to be able to recover their creditworthiness, and that banks are doing their best for borrowers not to become bankrupt, although the situation is challenging. This has become possible largely owing to the measures and regulatory easing approved by the Bank of Russia.
QUESTION from TASS Agency:
A number of banks observe that demand for the governmental 2% lending programme exceeds the established limits. Does the Bank of Russia consider it necessary to increase these limits?
ELVIRA NABIULLINA:
That is true; we do observe high demand for the 2% lending programme, and this demand will most probably exceed the established limits. Borrowers are very extensively using this programme, and banks as well are very actively approving relevant requests. Therefore, I believe that the issue of increasing the limits is justified, but this shall definitely be approved by the Government, and the Bank of Russia is ready to take part in the discussion of this issue.
QUESTION from Vedomosti:
Bank Otkritie announced back in January 2020 that it was planning its IPO in autumn 2021. Does the Bank of Russia maintain this IPO plan during the specified period, and what equity stake may be offered?
ELVIRA NABIULLINA:
Yes, the Bank of Russia maintains its plan to sell Bank Otkritie, an equity stake in Bank Otkritie. We were really going to start the sale at the end of 2021, but in the context of such circumstances, as the pandemic, the restrictions in place, and the situation in banks, potential investors should have a possibility to estimate the bank’s standing and prospects after the end of the pandemic. Therefore, we believe that spring 2022 would be a more realistic period. We continue the preparations for selling Bank Otkritie. We will also be discussing selling procedures and the size of equity stakes. At the moment, there are no final decisions yet. We are going to scrutinise these issues and intend to sell Otkritie’s equity portfolio as soon as possible.
QUESTION from Reuters:
Is the Bank of Russia planning to reduce the percentage of banks’ contributions to the required reserve fund (RRF) for foreign currency instruments from the current 8%, or to even out the RRF for foreign currency and ruble-denominated liabilities, given that interest rates on foreign currency deposits have declined almost to zero?
ELVIRA NABIULLINA:
No, we are not going to do this, since the differentiation of interest rates on foreign currency and ruble-denominated instruments is an element of our long-term policy aiming to reduce the portion of foreign currency on banks’ balance sheets. We do believe that this policy is justified and it has been paying off. Today, the banking sector is experiencing less significant adverse consequences. One of the reasons behind this is that by this moment we have decreased the percentage of foreign currency in both assets and liabilities on banks’ balance sheets. Moreover, we are going to continue this policy and are not planning to wind it down.
QUESTION from Kommersant:
We all know the Bank of Russia’s position regarding unsecured loans. However, the economy needs a reboot today, and retail lending is a major issue in this process. Unsecured loans may give a large boost to consumer demand. Preferential mortgage lending has proven to be efficient. Does the Bank of Russia consider it possible to launch preferential consumer lending programmes, for instance, for employees of companies from the most affected industries?
ELVIRA NABIULLINA:
Consumer demand is surely a crucial element for a successful economic reboot, and accordingly, it is essential to push demand. As to unsecured loans, we observed an excessive growth rate in this area before the beginning of the year and were implementing targeted measures to cool this market. Unsecured lending has certainly shrunk now and will be recovering. However, we believe that it should bounce back without inducing problems for borrowers themselves. This is exactly why we have introduced the debt service-to-income ratio. The amount of loans individuals will be able to raise will largely depend on the recovery pace of both their incomes and the economy, that is, everything is interconnected.
Regarding preferential loans, preferential mortgage lending is the Government’s programme. The Bank of Russia does not finance preferential mortgage loans and so on. Therefore, this issue is rather within the competence of the Government.
QUESTION from Izvestia:
My question is about the regulatory relaxations the Bank of Russia implemented for banks in late March — early April. I would like to make it clear whether they are mandatory for banks, and if not, how many banks are making advantage of them, since you have said that banks do not always demonstrate demand for liquidity instruments.
ELVIRA NABIULLINA:
We have several types of regulatory relaxations. The main one is the possibility not to create provisions for restructured loans, and we can see that the majority of banks do resort to this measure. Of course, if in this case banks comprehend that a restructured loan will most likely not be serviced in full amount in the future, they start to form loss provisions, being aware that this problem will subsequently arise. Therefore, they create provisions to the extent possible, and are acting prudently. We have also permitted banks not to revaluate shares and to apply a fixed exchange rate of the ruble; and a range of banks are making advantage of these measures as well, although not extensively.
Banks may resort to these relaxations at their discretion. This is for banks to decide whether they need this regulatory easing or not. Overall, banks are really using these relaxations, and not only the first type, as I have mentioned, but also the second and the third ones — all these measures provide more comfort to banks, and they understand that they may apply these relaxations if needed.
QUESTION from Rossiyskaya Gazeta, Samara:
Inflation devalues households’ savings, and many individuals tend to withdraw their deposits from banks. Are you going to take any measures to support the attractiveness of interest rates on bank deposits? Won’t the financial aid provided by the Government to households instigate an outbreak of inflation, making it hard for people to buy anything for the money received?
ELVIRA NABIULLINA:
I totally agree with the first statement. Inflation surely devalues households’ savings. This is why the Bank of Russia’s monetary policy is aiming to continuously keep inflation under control, that is, close to the long- and medium-term target of around 4%.
Speaking of interest rates on bank deposits, they currently remain attractive, exceeding the inflation rate. We can see that from March to May, despite all fluctuations over this period, households’ deposits expanded by 250 billion rubles, overall. This is another evidence that deposits have remained attractive for households.
As regards the governmental aid and payment of significant amounts, discussing our monetary policy decisions we take into account future budget spending in order to always keep inflation under control. In our opinion, there won’t be any outbreak of inflation. Rather, these budget expenditures will offset the decline in households’ incomes resulting from the restrictions in place, the suspension of companies’ operations, the switch to part-time employment, and so on. Hence, we do not see any pro-inflationary effect. On the contrary, disinflationary factors are expected to prevail in the near future.
QUESTION from TASS Agency:
In the context of the situation with AGD DIAMONDS, do you see any risks of the revision of other investment transactions? Can this situation adversely affect the investment climate? Do you consider it possible to settle this conflict extrajudicially?
ELVIRA NABIULLINA:
The investment climate is surely an essential priority of economic policy, and more. However, the revision or challenging of transactions is the existing practice provided for by law. The limitations of actions for challenging transactions are stipulated by law. Just imagine: if there is a ban to challenge transactions, even when they involve a breach of the procedure or any other issues, this will not improve the investment climate in any way, I believe. On the contrary, violations of procedures, and not only violations of procedures, but also other parameters due to which such transactions may be challenged, will most likely become widespread. In no way, this may enhance the investment climate. I do not see any mass-scale problem in this regard. Litigation is the process enabling parties to provide their arguments and the court to deliver an appropriate justified decision.
QUESTION from Fomag.ru:
My question is about retail investors who have entered the stock market and are experimenting with multiple instruments, including foreign securities beyond the S&P 500 (recently, they have started to purchase Zoom’s shares). They are already buying futures and forward contracts. In this regard, my question is whether the draft law on qualified investors will apply to them in any way, or this draft law will only be applicable to those who will enter this market in the future.
ELVIRA NABIULLINA:
In the first place, the Bank of Russia considers it crucial to approve the law on qualified and non-qualified investors. You are absolutely right saying that there are various instruments and multiple types of issuers emerging in the market. Therefore, it is definitely essential to protect non-qualified investors. We believe that non-qualified investors should have access to securities and to new securities, but only after special testing, that is, a future retail investor should demonstrate a sufficiently high level of knowledge and competences to deal with particular instruments. There will be no ban in this regard, but rather a certain admission procedure that would help protect investors themselves against potential risks. Unfortunately, such risks may arise. As regards incumbents and newcomers, those investors who are currently qualified will by default preserve this status according to the new law.
QUESTION from RIA Novosti:
Given the information for April—May and the gradual easing of restrictions, how does the Bank of Russia estimate GDP decline in the second quarter?
ELVIRA NABIULLINA:
In April, the Bank of Russia forecast that GDP would shrink by approximately 8% in 2020 Q2. At that time, however, we certainly had no information on how Russian regions would be easing their restrictions. Later on, the restrictions were extended to May. We can now see that they are being gradually lifted, but the pace of this easing varies across regions. In this context, we will be analysing the situation and adjusting our forecast estimates closer to the date of the Board of Directors’ meeting. At the moment, I cannot say what figures may be provided in adjusted forecasts.
QUESTION from Izvestia:
Experts are currently talking of two potential scenarios of an economic upturn — an L- and
ELVIRA NABIULLINA:
It seems that experts have already tried a good part of, if not the entire alphabet in an attempt to describe possible recovery scenarios. Nonetheless, I think that a
QUESTION from Interfax:
The Bank of Russia recently published its Financial Stability Review where it stated the amount of buffers that banks might use if the Bank of Russia changed the regulation and reduced the increased capital adequacy buffers for foreign currency-denominated and unsecured retail loans. How probable is it that in the next few months, after having released the buffer for mortgage loans, the Bank of Russia will also permit banks to use, for instance, the buffer for existing foreign currency loan portfolios and existing unsecured loan portfolios?
ELVIRA NABIULLINA:
Our banking system has really accumulated a considerable number of buffers. In addition to the above mentioned ones, there are also buffers for systemically important banks. However, we should very accurately consider whether it would be reasonable to release these buffers. Our approach is as follows: changes in the credit quality of loans, especially of restructured ones, and not only of restructured loans, resulting from all these events will manifest over time. The peak growth of bad debts will most probably occur in 2020 Q4 — 2021 H1. Consequently, banks will have to absorb these losses over this period.
Essentially, we would like to interconnect three processes. First of all, this is a gradual and smooth cancellation of the regulatory relaxations allowing banks not to recognise this kind of losses immediately, but to spread them over time. The second process involves identifying the credit quality of relevant assets. Finally, this is a progressive release of buffers. We will prepare a well-balanced decision for banks to smoothly switch to the operation under the normal regulation and be capable to absorb these losses over time. Furthermore, it is currently so important to release buffers because banks should have capital enabling them to continue lending to the economy. If we release buffers now, it would be unreasonable for banks to use them not for covering future losses, but for granting new high-risk loans. Banks should be very prudent in this regard.
This was the last question for today. Thank you for your attention and questions. I wish you all good health!