© Reuters. FILE PHOTO: A Russian state flag flies above the headquarters of the Central Bank in Moscow on March 29, 2021. A sign reads “Bank of Russia.” Photograph: Maxim Shemetov/Reuters
Written by Elena Fabrichnaya and Alexandre Maru
MOSCOW (Reuters) – The central bank said on Friday that pressure on foreign banks operating in Russia and widening sanctions are exacerbating foreign currency settlements in Russia and creating cyclical imbalances in the domestic market.
Western sanctions against Moscow over its actions in Ukraine have limited its use of the dollar and the euro, with settlements in currencies Russia considers “friendly” — those of non-sanctioned countries — increasing dramatically.
But the central bank said that this rise, which it is leading, is not uniform, which creates temporary imbalances and difficulties in foreign exchange liquidity.
In a review of financial stability, the Bank of Russia also warned of the risks of money from Russians accumulating in foreign banks, particularly if access to them becomes restricted.
The central bank said that in 2022 and the first quarter of 2023, Russians reduced the volume of foreign currency deposits in Russian banks by 3.1 trillion rubles ($39.9 billion), while 2.6 trillion rubles were transferred to subsidiaries of foreign banks.
Meanwhile, the bank said the restrictions imposed on unqualified investors’ purchases of securities of issuers from “unfriendly” countries contribute to individuals buying from foreign brokers.
In the long term, in the event of a decline in the confidence of private investors in the Russian stock market, there are risks of an increase in citizens’ savings in foreign instruments and the inflow of funds from the Russian banking system, as well as a decrease in companies’ ability to attract long-term financing.
Russian banks own 65.6% of the treasury bonds traded in OFZ. The bank said OFZ’s stake in assets of Russian banks amounted to 8.3% at the beginning of May and had “significant potential” for further purchases.
But companies are also under pressure from increased transportation and other costs.
“One of the main drivers of rising capital costs is the change in companies’ technological processes amid a lack of access to previously used foreign equipment,” the bank said, with the pharmaceutical, chemical, rubber and plastics industries particularly struggling. ($1 = 77.7205 rubles)