Russia’s banks to bid for fresh government loans

Russian banks are asking for less money than the Ministry of Finance has actually offered, with the offer from the primary regulator almost tripling its previous one.

Russia’s Finance Ministry has agreed to lend 205 billion roubles to the country’s banks at an interest rate of 6.2%. The government offer exceeds what the country’s banks actually asked for the Ministerial statement reads.

“The auction ended with the banks asking for 180.65 billion roubles – a sum significantly lower than the primary offer of 205 billion roubles.”

The funds will be up for grabs via auction sale on Tuesday, and will have to be repaid by December 14.

The amount for each of five possible bids by one bank must not exceed 200 million roubles.

At the last deposit auction on November 1, the Ministry of Finance offered 55 billion roubles under a 7.68% interest rate for a period of seven weeks, up significantly from 10 billion roubles. After the auction closed, bids amounted to almost twice the value of the offer, reaching 95.212 billion roubles.

Following the outcome of the November 1 auction, the ministry said that it will continue to implement monetary measures to avoid money shortages in the system.

“To maintain the necessary level of liquidity in banks, which are part of the whole system and provide the corporate and private sector with money, we suggest continuing deposit auctions on a regular basis in an amount equal to paid back deposits by credit organizations in the current month.”

Out of 18 deposit auctions held since August, the demand has been below the ministerial offer only once. Dmitry Vinogradov, an analyst at UBS, says that such measures are reasonable.

“Given the high rate of credit growth, the volumes of deposits are still below what was expected, so it is the right time to provide banks with some additional liquidity.”

According to the Central Bank of Russia (CBR), the volume of private deposits increased by 11.2% to 10.920 trillion roubles over the nine months, against 22% expected for the whole year. Last year, the volume of deposits increased 31.2% year-on-year.

Vinogradov adds that “Nowadays we can see the rates are up, notably Sberbank has come up with a decision to raise rates. All this signifies liquidity problems.”

According to the Central Bank, in the 3Q 2011, the maximum deposit rate among the top 10 banks grew by 0.05% to 8.33%. Notably, Sberbank was the first to raise rates on deposits to 7%.

Vinogradov noted that the CB will avoid repeating the mistake of 2008 when it failed to put money into the system.

“The CBR now is very attentive and careful with all measures and both Ministry of Finance and CBR have enough funds and instruments to support the financial sector,”  Vinogradov concluded.

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