Extension of maturities on loans to banks has no effect on liquidity
On June 30, 2014, the Bank of Russia extended the maturity from 365 to 549 days for secured loans to banks as part of continuing operations. This policy is applicable to loans secured by non-market assets or guarantees, as well as gold-backed loans.
The Central Bank of Russia has retained interest rates on the foregoing instruments at 9.25% and 9.00% p.a. respectively. At the same time, loans with maturities ranging from 2 to 90 days remain to be subject to a flat interest rate, whereas loans with maturities from 91 to 549 days must be subject to a floating interest rate effective from June 30, 2014 pegged to the key interest rate (7.5% p.a.) of the Bank of Russia.
In our opinion, this policy will have an insignificant impact on liquidity in the banking sector. Loans with maturities of 1 to 3 months are currently most popular among secured loans, which in June 2014 accounted for an average of 60% of the total banks’ debt on secured loans. Secured loans with maturities of 181 to 365 accounted for only 7% on average.
A weak demand for this liquidity provision instrument is determined by high level of the flat interest rate, lack of collateral with the desired maturity (12 months) in most of banks, as well as high alternative costs of shrinking the collateral value available for credit institutions (missed opportunities to obtain short-term loans because of running short of available collateral value).
Alexandra Bozhechkova, researcher