Base rate - negative outlook
Russian banks stopped experiencing liquidity problems, which shall reduce the rates at the Russian market
Liquidity surplus
Liquidity surplus is accumulating in the Russian banking sector - bank loans are falling increasingly behind the amount of deposits.
Liquidity surplus has begun to accumulate since the second part of 2015 - since that moment funds of the banks in the Central Bank of the RF began to exceed the liquidity, provided by the CB to the banking sector. Similar situation took place in 2011, and at that time CB managed to absorb surplus liquidity, having become net creditor of the banks since the middle part of 2012.
CB support is decreasing recently - REPO auctions are on the downward trend, only December of 2014 breaks out of the overall picture.
Deposits are growing faster than credits
In conditions of steady excess of MosPrime overnight (rate, according to which commercial banks grant credits to each other for one day) over average weighted rate of REPO operations (cost of overnight credit, provided by CB) - other sources of banks’ financing became more advantageous (in comparison with loans, offered by CB), in particular, deposits, which average rate increased less than MosPrime.
In the result, in winter 2014-15 growth rate of bank deposits demonstrated acceleration, and, in the whole, showed rather good growth in the course of the following year. But placement of acquired deposits in the form of credits was far more difficult task - with exception for the boom in the beginning of last year, caused by exchange rate surge, credit growth rates were gradually falling.
Stock market is considered to be an alternative tool for the investment of bank funds, and since the middle of 2014 growth rate of bank investment into securities has spiraled, steadily exceeding 1.5% per month. But undercapacity of domestic stock market significantly limits possibility of the banks concerning it.
So, bank liquidity surplus is explained not by the reductions of its’ liabilities, but by narrowing down of possibilities for good investments.
Due to the processes, described above, credit-to-deposit-ratio in the bank system has changes its trend for the last year and a half. And if before the fourth quarter of 2014 such ratio was generally held at the same level (credits exceeded deposits by 15-20%), then the situation was reversed, deposits began to grow far more rapidly, and by the beginning of 2016 credits exceed deposits only by 5-7%.
Banks have too much money
Outrunning growth of deposits is quite rational - deposit rates, which increased significantly in the end of 2014, improved attraction of this tool, Russians began to deposit their money with banks more actively (there were no reversals in the rate of increase, which may be explained by the inertness of private deposits’ sector).
Legal bodies traditionally demonstrate better alertness, responding more quickly to the changes of the market - together with the growth of deposit rates in the end of 2014, growth rate of bank deposits, made by the companies, has increased greatly.
So, due to the liquidity surplus, banks need money inflow less, and need tools for its opening, which shall reduce the rates - both for credits and deposits. And we are able to observe it recently - and Sberbank appeared to become a flagship of it, having reduced the deposit profitability and credit costs sharply (at the moment only for physical bodies)
Dynamics of rates at the RF monetary market
Time to reduce the rates
So, the market is characterized with unconventional rate behavior - above mentioned systematic surplus of average weighted rate for REPO operations over MosPrime overnight, as well as highly increased spreading between MosPrime overnight and average deposit rate.
In such conditions CB should probably decrease the base rate, not least because the oil, bargaining at half-yearly peaks, shall provide the ruble a significant support, and inflationary forecasts are rather moderate (6-7%).
Decrease of credit rates shall lead to its’ greater availability, and, accordingly, repayment of credits shall increase payables to banks, which shall allow the latters to provide credits for the Russian enterprises even more actively.
Next CB meeting concerning the change of the base rate is planned for June 10.